-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K7vukd7YsHdEFBnn6o5JQ69RRx+faP54nnB5CE6feso8pW0AXJyoJNxDfAW1GA70 7ZF2hc+kYKZDrpHF1xkpNA== 0000950135-00-001553.txt : 20000323 0000950135-00-001553.hdr.sgml : 20000323 ACCESSION NUMBER: 0000950135-00-001553 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER GROUP INC CENTRAL INDEX KEY: 0000733060 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 135657669 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-08841 FILM NUMBER: 575183 BUSINESS ADDRESS: STREET 1: 60 STATE ST STREET 2: 19TH FLOOR CITY: BOSTON STATE: MA ZIP: 02109-1820 BUSINESS PHONE: 8008211239 MAIL ADDRESS: STREET 1: 60 STATE STREET STREET 2: 19TH FLOOR CITY: BOSTON STATE: MA ZIP: 02109-1820 10-K405 1 PIONEER GROUP INC 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________ COMMISSION FILE NUMBER 0-8841 THE PIONEER GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-5657669 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION)
60 STATE STREET, BOSTON, MASSACHUSETTS 02109 (617) 742-7825 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF PRINCIPAL EXECUTIVE OFFICES) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, PAR VALUE $0.10 PER SHARE (TITLE OF CLASS) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]. Based on the last sale price of the Registrant's Common Stock on The Nasdaq Stock Market(R) of $20.063 on March 1, 2000, the aggregate market value of the shares of voting stock held by non-affiliates of the Registrant on that date was $306,371,901. (Shares of Common Stock held by each executive officer, director and holder of 5% or more of the outstanding Common Stock have been excluded as such persons may be deemed to be affiliates, for purposes of this calculation only.) As of March 1, 2000, 26,770,455, shares of the Registrant's Common Stock, $0.10 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Certain information called for by Part III (as indicated therein) is incorporated from the Registrant's definitive proxy materials for use in connection with the 2000 Annual Meeting of Stockholders. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS. OVERVIEW The operations of The Pioneer Group, Inc., a corporation organized under the laws of the State of Delaware in 1956 (the "Company," which may be referred to as "we," "us" or "our"), and its wholly owned subsidiaries, in 1999 consisted of three strategic business units: (i) Pioneer Investment Management, (ii) Pioneer International Financial Services, and (iii) Pioneer Global Investments. The following discussion summarizes the operations of each unit during the year. PIONEER INVESTMENT MANAGEMENT. The business of this unit includes: - investment management, marketing and distribution of our 25 open-end registered investment companies (comprised of 37 investment portfolios) and one closed-end registered investment company (collectively, the "mutual funds") based in the United States and available to domestic and certain non-U.S. investors, as well as the nine offshore open-end investment funds based in Ireland and available to non-U.S. investors - shareholder servicing for the open-end mutual funds and offshore funds - separate account management services for institutional investors PIONEER INTERNATIONAL FINANCIAL SERVICES. The business of this unit includes investment management and financial services operations in: - Warsaw, Poland, where we manage and distribute units of four mutual funds available to Polish citizens, operate a unitholder servicing agent for the mutual funds and own 70% of a private pension fund management company - Prague, the Czech Republic, where we manage, distribute and service a Czech open-end mutual fund - Moscow, Russia, where we distribute shares of, manage and service two open-end mutual funds available to Russian citizens and manage and own approximately 52% of the Pioneer First Investment Fund, a closed-end fund - Madras, India, where we own 47.61% of an Indian company that serves as the investment adviser, distributor and shareholder servicing agent to 22 private sector mutual funds available to Indian citizens - Taiwan, where we own a 10% interest in an investment management operation PIONEER GLOBAL INVESTMENTS. The business of this unit includes our diversified strategic businesses of: - international venture capital management and investing - real estate management and advisory services - timber harvesting and development You can learn more about our businesses by visiting our homepage on the Internet at WWW.PIONEERFUNDS.COM. 1 3 PIONEER INVESTMENT MANAGEMENT DOMESTIC INVESTMENT MANAGEMENT Our domestic investment management business includes the U.S. registered mutual funds, the offshore funds registered in Ireland and private institutional accounts. Our wholly owned subsidiary, Pioneer Investment Management, Inc. ("Pioneer Management"), advises all of these investments. This business also includes distribution, shareholder servicing and transfer agency activities related to these investment products. U.S. Mutual Funds. Pioneer Management serves as investment manager to 25 domestic open-end mutual funds (consisting of 37 investment portfolios, comprised of eight U.S. growth portfolios, eight international growth portfolios, 10 growth and income portfolios, eight income portfolios, one tax-free income portfolio and two money market portfolios) and one U.S. closed-end mutual fund (also an income portfolio). These portfolios include Pioneer Strategic Income Fund, which commenced operations in April 1999, Pioneer Tax-Managed Fund, which commenced operations in November 1999, and Pioneer High Yield Fund, which commenced operations in March 2000. All of these funds (the "U.S. Funds") are registered under the Investment Company Act of 1940, as amended (the "1940 Act"). At February 1, 2000, the U.S. Funds had aggregate net assets of approximately $22.5 billion. Pioneer Management manages each U.S. Fund pursuant to a management contract. Each year either the U.S. Fund's Board of Trustees (including a majority of members who are not "interested persons" as defined under the 1940 Act) or the U.S. Fund's shareholders must vote to renew the management contract for each U.S. Fund. Each management contract will terminate automatically if either party assigns it, which may be deemed to occur in the event of a change of control of the Company. Either party may elect to terminate the contract, without penalty, on 60 days' written notice. All management contracts for the U.S. Funds (other than the U.S. Funds that were established in 1999 or 2000) were renewed for an additional year in 1999. These contracts authorize Pioneer Management in its discretion to buy and sell securities for the accounts of the U.S. Funds, subject to certain limitations. In addition, each management contract specifies how the ordinary operating expenses are divided between the U.S. Fund and Pioneer Management. As compensation for its management services, Pioneer Management receives annual management fees from the U.S. Funds that range from 0.40% to 1.25% of average daily net assets, depending on the U.S. Fund. Five of the U.S. Funds (including the two largest U.S. Funds) have a management fee that is adjusted based upon the U.S. Fund's performance relative to the performance of an established index. For 1999, 1998 and 1997, management fee revenues from all U.S. Funds in the aggregate and from Pioneer Fund and Pioneer II, our two largest U.S. Funds, is shown in the chart below:
1999 1998 1997 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Management Fee Revenues from all U.S. Funds........ $134 $125 $107 Management Fee Revenues from Pioneer Fund.......... $ 43 $ 32 $ 21 Management Fee Revenues from Pioneer II............ $ 28 $ 36 $ 40
In certain limited circumstances, Pioneer Management has agreed temporarily not to impose a portion of its management fees and to make other arrangements, if necessary, to subsidize operating expenses of selected U.S. Funds. During 1999, 1998 and 1997, Pioneer Management limited management fees or otherwise incurred expenses pursuant to expense limitation agreements as shown in the chart below:
1999 1998 1997 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Management Fees Limited or Expenses Incurred....... $2.0 $1.5 $1.8
Pioneer Management employed, at February 1, 2000, 146 persons on a full-time basis, including 17 fund managers and 31 investment analysts. Irish Funds. Our wholly owned subsidiary, Pioneer Management (Ireland) Limited ("Pioneer Ireland"), serves as investment manager, distributor and shareholder servicing agent for nine offshore funds incorporated under the laws of the Republic of Ireland. These funds consist of five growth portfolios, one 2 4 growth and income portfolio, two income portfolios and one money market portfolio (collectively, the "Irish Funds"). Pioneer Management serves as investment adviser for the Irish Funds. As compensation for its management services, Pioneer Ireland receives annual management fees from the Irish Funds of 0.60% to 1.25% of average daily net assets. The Irish Funds are currently sold primarily in Germany and Austria and in other locations outside of the United States and Europe. At February 1, 2000, the Irish Funds had aggregate net assets of approximately $538 million. Pioneer Ireland's main office is located in Dublin, Ireland. It also maintains an office in Hamburg, Germany, which provides shareholder servicing to German, Austrian and Swiss shareholders of both the U.S. and Irish Funds. At February 1, 2000, Pioneer Ireland had 171 employees, including management and support staff. Institutional Accounts. Pioneer Management acts as an investment manager to five private institutional accounts for institutional investors. These accounts had aggregate assets of approximately $64 million at February 1, 2000. DISTRIBUTION ACTIVITIES Pioneer Management's wholly owned subsidiary, Pioneer Funds Distributor, Inc. ("Pioneer Distributor"), acts as principal underwriter and distributor of the shares of the U.S. Funds (except Pioneer Interest Shares, a closed-end fund which does not continuously offer its shares). In 1999, Pioneer Distributor's sales of U.S. Funds were approximately $3.7 billion. The breakdown of the classes of shares sold in 1999 is set forth in the chart below.
PIONEER VARIABLE CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Y SHARES CONTRACTS TRUST -------------- -------------- -------------- -------------- ---------------- Aggregate Offering Price (in millions)......... $2,341.5 $784.1 $332.7 $36.1 $196.6
In connection with selling Class A Shares of the U.S. Funds, Pioneer Distributor received aggregate commissions in each of 1999, 1998 and 1997 as shown in the chart below. During those years, Pioneer Distributor reallowed the amount shown in the chart below to approximately 1,600 independent broker-dealers throughout the United States and in several foreign countries. One broker-dealer was responsible for approximately 12% of sales in 1999, 11% of sales in 1998 and 10% of sales in 1997.
1999 1998 1997 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Commissions Received.................................. $ 60.2 $ 75.9 $ 60.9 Commissions Reallowed................................. $ 52.7 $ 66.1 $ 53.8
Underwriting Contracts. Pioneer Distributor provides its underwriting and distribution services pursuant to an underwriting contract with each of the U.S. Funds. The contracts are substantially identical for each of the U.S. Funds. Each year either the U.S. Fund's Board of Trustees (including a majority of those Trustees who are not "interested persons" as defined under the 1940 Act) or the U.S. Fund's shareholders must vote to approve the one-year contract. Each contract will terminate automatically if either party assigns it. Either party may elect to terminate the contract, without penalty, on 60 days' written notice. All underwriting contracts for the U.S. Funds (other than the U.S. Funds that were established in 1999 or 2000) were renewed for an additional year in 1999. Sales Charges. Generally, purchasers of shares of the U.S. Funds pay a sales charge at the time of purchase. The amount of the sales charge is the difference between the offering price of the shares and the net asset value of the shares. The sales charge varies generally as a percentage of the offering price. Shares that are subject to this sales charge are referred to as front-end load shares ("Class A Shares"). Sales charges on Class A Shares range from zero to 5.75% depending on the U.S. Fund and the amount invested. Pioneer Distributor reallows most of the sales charge on Class A Shares to broker-dealers who sell the shares. This reallowance varies as a percentage of the offering price on sales under $1 million. Reallowances range from 1.0% to 5.0% depending on the U.S. Fund and the amount of the sale. Pioneer Distributor may increase the reallowances on new funds and during certain short-term promotions to 100% or more of the sales charge. 3 5 Most U.S. Funds also offer other classes of shares. We sometimes refer to these U.S. Funds as the "multiclass funds." Pioneer Interest Shares and Pioneer Independence Fund are the only U.S. Funds that offer only one class of shares. Pursuant to this structure, the multiclass funds offer Class A Shares, two classes of back-end load shares ("Class B Shares" and "Class C Shares") and a no-load institutional class of shares ("Class Y Shares"). On Class B Shares, the investor does not pay any sales charge unless the investor redeems before the expiration of the minimum holding period, which ranges from three to six years. The investor must pay a contingent deferred sales charge (a "CDSC"), ranging from 2.0% to 4.0%, on these early redemptions. On Class C Shares, the investor does not pay any sales charge unless he or she redeems within one year of purchase, in which event the investor pays a 1.0% CDSC. Class Y Shares are not subject to a front-end load, back-end load or Rule 12b-1 distribution fee. We began offering Class B Shares in April 1994, Class C Shares in January 1996 and Class Y Shares in April 1998. We do not offer Class C Shares and Class Y Shares on all multiclass funds. Pioneer Distributor may, in its discretion, pay a commission to broker-dealers that initiate and are responsible for individual sales of Class A Shares totaling at least $1 million but less than $50 million. The commission can range from 0.10% to 1.0%, depending on the U.S. Fund and the amount of the sale. Certain purchases not subject to an initial sales charge may be subject to a CDSC of 1.0% in the event of certain redemption transactions within one year. With respect to sales of Class B Shares, Pioneer Distributor generally will pay broker-dealers commissions ranging from 2% to 4% of the sales transaction amount (including a service fee of 0.25% for the first year). With respect to sales of Class C Shares, Pioneer Distributor will pay broker-dealers commissions of 1.0% of the sales transaction amount (including a service fee of 0.25% for the first year). Pioneer Distributor incurs the expense of distributing Class Y Shares. During 1999, 1998 and 1997, in connection with sales of Class B Shares, Pioneer Distributor paid aggregate commissions to broker-dealers as shown in the chart below:
1999 1998 1997 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Broker-Dealer Commissions Paid............. $28.2 $27.5 $16.3
Previously, vigorous sales of back-end load shares strained Pioneer Distributor's cash flow because Pioneer Distributor had to wait several years before fully recovering the cost of commissions it paid to dealers, pursuant to Rule 12b-1 distribution plans. During this period, we bore the cost of financing and the risk of market decline. Rather than continuing to bear the ongoing financing costs and market risks, in September 1998, Pioneer Distributor sold its rights to certain distribution fees and CDSCs from the distribution of Class B Shares of the U.S. Funds in exchange for cash payments from a third party. This arrangement also provides for the continuing sale at a slight premium of additional rights arising out of future sales of Class B Shares on a monthly basis through September 2001. The purpose of this transaction was to provide us liquidity and reduce the continuous strain on our cash flow. Distribution Plans. Each of the U.S. Funds (except Pioneer Interest Shares) has one or more distribution plans pursuant to Rule 12b-1 under the 1940 Act. These plans provide for certain payments to be made to Pioneer Distributor. With respect to Class A Shares, the distribution plans (the "Class A Plans") provide that such U.S. Funds will pay certain expenses up to 0.25% per annum of average daily net assets (0.15% for Pioneer Cash Reserves Fund, a money market fund). With respect to Class B and Class C Shares, the distribution plans (the "Class B Plans" and "Class C Plans," respectively) provide that U.S. Funds will pay fees for distribution services in an amount not to exceed 0.75% per annum of the average daily net assets of the Class B or Class C Shares. The Class B Plans and Class C Plans also require the U.S. Funds to pay fees for personal and account maintenance services in an amount not to exceed 0.25% of the average daily net assets of the Class B or Class C Shares. Annually, each U.S. Fund's Board of Trustees, including a majority of Trustees who are not "interested persons," must approve the U.S. Fund's distribution plans. In 1999, the Trustees of the U.S. Funds (other than U.S. Funds that were established in 1999 or 2000) renewed the 4 6 Class A, Class B and Class C Plans. In 1999, 1998 and 1997, Pioneer Distributor received aggregate distribution fees as shown in the chart below:
1999 1998 1997 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Total Distribution Fees Received........... $2.2 $14.0 $13.1
Domestic Sales of Shares of the U.S. Funds. Pioneer Distributor is a registered broker-dealer, employing at February 1, 2000 155 full-time personnel, including 22 wholesalers who are responsible for territories comprising most of the United States and Puerto Rico. The sales representatives work with broker- dealers to promote sales of U.S. Fund shares in their respective territories. Substantially all of the U.S. Funds' shares are sold to the public by securities sales persons registered with the National Association of Securities Dealers, Inc. (the "NASD") who act as representatives of broker-dealer firms, which are members of the NASD. All of these broker-dealer firms have signed sales agreements with Pioneer Distributor. Shares of our U.S. Funds are available for sale in all states by broker-dealers and registered representatives licensed in those states. International Sales of Shares of the Funds. Pioneer Distributor's wholly owned subsidiary, Pioneer Fonds Marketing GmbH ("Pioneer Fonds Marketing"), is registered under the laws of the Republic of Germany. Pioneer Fonds Marketing performs marketing and sales activities with respect to sales of shares of certain of the U.S. Funds in Europe, primarily in Germany, Austria and Switzerland. Pioneer Fonds Marketing had 27 full-time employees as of February 1, 2000. In 1999, approximately 12% of the total sales of the U.S. Funds' shares were sold outside of the United States, as compared with 13% in 1998 and 16% in 1997. Pioneer Fonds Marketing also performs marketing and sales activities with respect to sales of the Irish Funds in Western Europe. Since 1998, Pioneer Global Funds Distributor, Ltd. ("Global Funds Distributor") has served as the exclusive worldwide distributor of the Irish Funds. Global Funds Distributor, a wholly owned subsidiary of Pioneer Distributor, is registered under the laws of Bermuda and maintains its registered office in that country. Global Funds Distributor has entered into an agreement with Pioneer Fonds Marketing with respect to sales of the Irish Funds in specified countries in Western Europe. Sales of the Irish Funds in the last three years were in the aggregate amounts shown in the chart below:
1999 1998 1997 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Aggregate Sales of Irish Funds....... $111 $174 $168
SHAREHOLDER AND RELATED SERVICES Pioneering Services Corporation. At December 31, 1999, the U.S. Funds had approximately 1,393,000 active shareholder accounts, including approximately 512,000 Individual Retirement Accounts ("IRAs") and other tax-qualified retirement accounts. Shareholder accounts, in general, and qualified accounts, in particular, require an exceptional amount of shareholder communications and transfer agency services. Our wholly owned subsidiary, Pioneering Services Corporation ("Pioneering Services"), has been providing transfer agent and shareholder services to the U.S. Funds since 1985. At February 1, 2000, Pioneering Services employed 304 full-time personnel, including 67 employees who are located in Omaha, Nebraska. As shareholder servicing agent for the U.S. Funds, Pioneering Services has entered into service agreements with each U.S. Fund (except Pioneer Interest Shares). Each agreement entitled Pioneering Services in 1999 to receive an annual active account fee of $25.25 for equity fund accounts and $33.00 for fixed-income fund and money market fund accounts. Each U.S. Fund's Board, including a majority of members who are not "interested persons," must approve the U.S. Fund's agreement with Pioneering Services 5 7 each year. Either party may cancel the agreement on 60 days' notice. For 1999, 1998 and 1997, Pioneering Services received revenues from service fees from the U.S. Funds as shown in the chart below:
1999 1998 1997 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Service Fee Revenues................. $38.0 $30.9 $27.0
Since February 1997, Pioneer Ireland has served as sub-shareholder servicing agent for certain of the U.S. Funds, representing approximately 128,000 active shareholder accounts. Under the direction of Pioneering Services, Pioneer Ireland provides shareholder and transfer agency services to U.S. Fund shareholders who are citizens of Germany, Austria and Switzerland. Pioneer Ireland also provides similar services to the shareholders of the Irish Funds, representing approximately 37,000 active shareholder accounts. Trustee/Custodian. The Company acts as the trustee/custodian for accounts that are IRAs or other tax-qualified retirement accounts. Shareholders with these accounts pay an annual fee of $10 for each such account, up to a maximum annual fee of $20 for shareholders with multiple accounts of one plan type. Shareholders also have the option of paying a one-time fee of $100 in lieu of the annual account fee. During 1999, 1998 and 1997, we received fees for serving as trustee/custodian as shown in the chart below:
1999 1998 1997 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Trustee/Custodian Fees Received...... $5.3 $5.5 $4.4
COMPETITION Management and Distribution Services. The mutual fund industry is intensely competitive. Many organizations in this industry are attempting to sell and service the same clients and customers, not only with mutual fund investments but also with other financial products. Some of our competitors have more products and product lines and substantially greater assets under management and financial resources than we do. We believe we are competitive in terms of price and performance both with firms that advise investment companies, pension plans and endowment funds and with firms that distribute investment company shares, but we cannot guarantee our success. The following trends have significantly affected the distribution of mutual fund shares: - the growth in the number of funds available for sale, in particular, no-load funds, the shares of which are sold primarily through direct sales approaches without any sales charge - the evolution of service fees payable to broker-dealers that provide continuous services to their clients in connection with their investments in a mutual fund - the increasing costs of distribution, particularly payments that Pioneer Management makes to certain third parties to gain access to distribution channels - the development and implementation of complex distribution systems employing multiple classes of shares and master-feeder fund structures Each mutual fund has a distribution plan that complies with Rule 12b-1 under the 1940 Act. Typically, the mutual fund reimburses or compensates the underwriter or distributor that pays a service fee. In order to remain competitive with other mutual fund complexes, all of the U.S. Funds that Pioneer Distributor distributes now pay service fees to broker-dealers. Success in the investment advisory and mutual fund share distribution businesses depends primarily on the U.S. Funds' investment performance. Good performance stimulates sales of the U.S. Funds' shares and tends to keep redemptions low. Higher sales of the U.S. Funds' shares generate higher management fees and distribution revenues (which are based on assets of the U.S. Funds). Good performance also attracts private institutional accounts to Pioneer Management. Conversely, relatively poor performance results in decreased sales and increased redemptions of the U.S. Funds' shares and the loss of private accounts, with corresponding decreases in revenues to the Company. In 1999, the majority of the U.S. Funds performed favorably in 6 8 comparison with relevant indices and benchmarks approved by the U.S. Funds' Boards, and fewer than half were generally competitive with comparable mutual funds offered by other firms. Shareholder Services. The shareholder services industry is extremely competitive. Pioneering Services believes that it is providing high quality shareholder services for the U.S. Funds and their shareholders at competitive rates. We believe that superior shareholder services are vital to success in this industry. While these services have historically been provided by banks and other institutions with greater resources than those of Pioneering Services or Pioneer Ireland, we believe that Pioneering Services and Pioneer Ireland generally outperform their competitors because they are dedicated exclusively to the provision of such services to the U.S. Funds and the Irish Funds and their respective shareholders, rather than to a number of different customers. REGULATION Each of the U.S. Funds is registered under the 1940 Act and the Securities Act of 1933, as amended. As registered investment companies, the U.S. Funds are subject to extensive regulation governing all aspects of their operations. In addition to being subject to the regulatory authority of the U.S. Securities and Exchange Commission (the "SEC"), the U.S. Funds are also subject to certain limited regulation by the securities regulators in all 50 states and in the foreign jurisdictions (such as Germany, Austria and Switzerland) in which several of the U.S. Funds are registered. Pioneer Distributor, as a registered broker-dealer under the Securities Exchange Act of 1934, as amended (the "1934 Act"), is required, among other things, to maintain certain records, file reports with the SEC, supervise employees and deal fairly with customers, all in accordance with the 1934 Act and the rules and regulations promulgated thereunder. Pioneer Distributor is also registered as a broker-dealer in all 50 states and, as such, is subject to regulation by the state securities regulators in all such states. Pioneer Distributor is a member of the NASD, a securities industry self-regulatory body which is itself regulated by the SEC under the 1934 Act. As a member of the NASD, Pioneer Distributor is required to abide by the standards, including pricing practices, set forth in the Articles of Incorporation, the By-Laws and the Rules of Fair Practice of the NASD. Pioneer Management, as investment manager of the U.S. Funds, adviser to the institutional accounts and investment adviser to the Irish Funds, is registered pursuant to the Investment Advisers Act of 1940, as amended, and as such is subject to certain recordkeeping, SEC reporting, compensation and supervisory rules and regulations. Each of Pioneering Services, as transfer agent for the U.S. Funds, and Pioneer Ireland, as sub-transfer agent for the U.S. Funds, is registered as a transfer agent pursuant to the 1934 Act. By being registered as transfer agents, they are subject to SEC recordkeeping and reporting requirements and certain other rules and regulations. The SEC has jurisdiction over registered investment companies, registered investment advisers, broker-dealers and transfer agents. In the event of a violation of applicable rules or regulations, the SEC could take actions that could have a serious effect on Pioneer Management's, Pioneer Distributor's, Pioneering Services' or Pioneer Ireland's businesses. The Irish Funds are authorized by The Central Bank of Ireland under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 1989 (S.I. No. 78 of 1989) of Ireland. PIONEER INTERNATIONAL FINANCIAL SERVICES FINANCIAL SERVICES -- POLAND Polish Mutual Funds. In 1992, certain of our Polish subsidiaries organized and began distributing units of Pioneer First Polish Trust Fund, the first mutual fund in Poland. Since 1992, those subsidiaries have 7 9 organized three additional funds, Pioneer Aggressive Investment Trust Fund, Pioneer Interest Bearing Securities Trust and Pioneer Privatization Trust Fund (collectively, the "Polish Funds"). Pioneer First Polish Investment Fund Joint Stock Company ("Pioneer First Polish") serves as an investment manager and distributor of units of the Polish Funds. As compensation for its management services, Pioneer First Polish receives management fees of 2.00% per annum of average daily net assets. The Polish Funds were established under the Public Trading in Securities and Trust Funds Act of March 22, 1991, as amended. At February 21, 1998 when the new Investment Fund Act of August 28, 1997 became effective in Poland, Pioneer First Polish converted from a trust fund company to an investment fund company. As of April 7, 1999, when the other Polish Funds completed the required procedures with the Polish Securities and Exchange Commission, those funds also were transformed into open-end investment funds. At February 1, 2000, Pioneer First Polish employed 93 full-time persons, including management and support staff. At February 1, 2000, the Polish Funds had aggregate net assets of approximately $338 million. Sales of units of the Polish Funds in 1999, 1998 and 1997 were in the amounts shown in the chart below:
1999 1998 1997 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Aggregate Sales of Polish Funds............ $ 28 $ 39 $203
Pioneer Financial Services Limited. In January 1992, we established Pioneer Financial Services Limited ("PFSL") to provide services to the Polish Funds. At that time, we owned 50% of PFSL, and Bank Polska Kasa Opieki, S.A ("Bank PKO") owned the remaining 50%. During the fourth quarter of 1998, we acquired the half of PFSL owned by Bank PKO. PFSL acts as the unitholder servicing agent for the Polish Funds, and Pioneering Services provides ongoing support to PFSL. Under the terms of its agreement with Pioneer Privatization Trust Fund, as of March 1999, PFSL began receiving a servicing fee of 1.75% of the total assets under management. For servicing each of the other three Polish Funds, PFSL receives annual fees equal to the Polish zloty ("PLN") equivalent of $21.00 per account. In 1999, PFSL received total fees of approximately PLN 16 million (approximately $4.1 million) from the Polish Funds. At December 31, 1999, PFSL serviced approximately 236,000 unitholder accounts. At February 1, 2000, PFSL employed 145 full-time persons. Polish Brokerage Operations. In March 1996, we acquired approximately 86% of Pioneer Polski Dom Maklerski, S.A., a Polish full-service brokerage operation ("PPDM"). During 1998 we reduced our interest in PPDM to 80%, and in the fourth quarter of 1999, we sold our entire interest in PPDM for $1.8 million, resulting in a gain of $1.2 million. Polish Pension Fund Company. In October 1998, we established a wholly owned subsidiary, Pioneer Pension Fund Company ("Pioneer Pension"), which was one of Poland's first universal pension fund societies. Initially capitalized with $10 million, Pioneer Pension manages pension assets accumulated in Pioneer Open Pension Funds, operating in the second pillar of Poland's reformed pension system. Pioneer Pension is licensed by the Pension Fund Supervisory Office in Poland under the Act on Organization and Operation of Pension Funds. In June 1999, we sold a 30% interest in Pioneer Pension to Nationwide Global Holdings, Inc. ("Nationwide") for $20 million. We recognized a gain on the sale of approximately $12.2 million, which we reflected as a credit to stockholders' equity in the second quarter of 1999. In our financial statements, we have deconsolidated Pioneer Pension because we share control with Nationwide. We have accounted for our investment in Pioneer Pension under the equity method retroactive to January 1, 1999. We used the consolidation method of accounting during the fourth quarter of 1998, when we formed Pioneer Pension. During 1999, Pioneer Pension lost $13.5 million as a result of high start-up costs and advertising expenses and lower than expected sales. Our share of this loss is $11.3 million. At February 1, 2000, Pioneer Pension had approximately 125,000 accounts. At that date, Pioneer Pension employed 145 persons. FINANCIAL SERVICES -- CZECH REPUBLIC In 1995, we organized and began distributing Pioneer Czech Investment Company, a.s. - open end mutual fund (the "Pioneer Czech Fund") in the Czech Republic. As of February 1, 2000, the Pioneer Czech Fund had net assets with a market value of approximately $100 million. Pioneer Czech Investment Company, a.s. ("Pioneer Czech") serves as investment adviser and distributor of participation certificates in the Pioneer 8 10 Czech Fund. As compensation for its management services, Pioneer Czech receives management fees of 2% of average daily net assets. Pioneer Czech is regulated by the Czech Securities and Exchange Commission in accordance with the new Securities Commission Act, Securities Act and Investment Company and Investment Funds Act. As of February 1, 2000, Pioneer Czech employed 33 full-time persons. We have a second Czech subsidiary, Pioneer Czech Financial Company s.r.o., which provides distribution services generally and which also helps to distribute the Irish Funds in the Czech Republic. FINANCIAL SERVICES -- RUSSIA Our Russian investment operations, which include Pioneer First (Company for the Management of Investment Funds) and Pioneer Services, are consolidated under our subsidiary, Pioneer First Russia, Inc. ("PFR"). In 1997, the International Finance Corporation ("IFC"), a member of the World Bank Group, invested $4 million in PFR, acquiring an 18.35% equity interest. At February 1, 2000, PFR and its subsidiaries employed 44 persons. As of February 1, 2000, the Pioneer First Investment Fund, which Pioneer First manages, had over 2 million shareholders and approximately 87 portfolio investments. A significant portion of the revenues of the Pioneer First Investment Fund is lease revenue from the Meridian Commercial Towers in Moscow, which Pioneer Real Estate Advisors, Inc., our real estate management subsidiary, manages. Pioneer First also serves as investment manager to our two Russian open-end unit investment funds. Launched in November 1996, Pioneer First Unit Investment Fund was one of Russia's first open-end unit investment funds. The Pioneer First Unit Investment Fund invests mainly in Russian government bonds. In November 1997, we launched our second open-end unit investment fund, Pioneer First Liquid Shares, which invests mainly in Russian equities. Pioneer Services provides shareholder services both to the First Investment Fund and the two open-end unit investment funds. In the first quarter of 1999, we decided to shut down our Russian brokerage subsidiary, Pioneer Securities. In 1999, 1998 and 1997, our Russian financial services had revenues and net income (loss) from continuing operations as shown in the chart below:
1999 1998 1997 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Revenues................................... $10.7 $ 10.3 $42.2 Net Income (Loss).......................... $(2.1) $(13.0) $ 5.8
OTHER INVESTMENT MANAGEMENT INITIATIVES India. Pioneer Management owns 47.61% of Kothari Pioneer AMC Ltd. ("Kothari Pioneer"), an Indian company, which serves as investment adviser, distributor and shareholder servicing agent to 22 private sector mutual funds for Indian citizens. These funds had aggregate net assets of approximately $475 million at February 1, 2000. Taiwan. We own 10% of a joint venture in Taiwan, which was organized to manage and distribute investments in investment companies to Taiwanese investors. COMPETITION We continually compete for investors for the Polish Funds, the Czech Fund, our Russian open-end unit investment funds and the Indian funds. Along with the other firms in those markets, we are seeking to attract assets of potential investors. We believe that these markets represent opportunities for us, but we are not alone in these pursuits. Many of our competitors have substantially greater resources to pursue such opportunities. Under the Polish government's pension privatization program, eligible Polish citizens may select a private pension company (those under 30 years old must select a private pension company), such as our Polish pension subsidiary, before the end of 1999. Competition for these accounts was fierce, and competition for the 9 11 future asset growth of these accounts will continue to be fierce. In addition, the costs associated with this competition were high, particularly for advertising and commission expenses. PIONEER GLOBAL INVESTMENTS TIMBER BUSINESS We hold a majority controlling interest in three companies located in the Khabarovsk Territory of the Russian Far East, Closed Joint-Stock Company "Forest-Starma" ("Forest-Starma"), Closed Joint-Stock Company "Amgun-Forest" ("Amgun-Forest") and Closed Joint-Stock Company "Udinskoye" ("Udinskoye"). The Company has consolidated its ownership of these three companies under its wholly owned subsidiary, Pioneer Forest, Inc. ("Pioneer Forest"). Of the three companies, Forest-Starma is the only company currently engaged in timber operations. Forest-Starma, which is located on Siziman Bay in the Vanino district of the Khabarovsk Territory, has developed a modern logging camp, including a harbor facility, from which it exports timber to markets in the Pacific Rim, primarily Japan and South Korea. Leasehold and Cutting Rights. Forest-Starma, Amgun-Forest and Udinskoye have each entered into long-term lease arrangements that provide significant leasehold acreage and annual cutting rights. In the aggregate, the three subsidiaries have leasehold rights comprising 1,076,500 hectares (approximately 2.7 million acres), with annual cutting rights of approximately 1.2 million cubic meters. The current leasehold rights of each of the projects appear in the chart below:
FOREST-STARMA AMGUN-FOREST UDINSKOYE ------------- ------------ --------- Hectares (acres)................ 390,100 485,400 201,000 (964,000) (1,200,000) (497,000) Annual Cutting Rights (m(3)).... 555,000 350,000 300,000
Currently, the local timber authorities are reviewing the cutting rights for Forest-Starma and Udinskoye. As a result of losses due to natural drying and other causes, we expect our annual cutting rights will be reduced. At the same time, we are completing negotiations with the territorial government to obtain replacement cutting rights for these projects in the surrounding area. Ownership Structure. Pioneer Forest owns 100% of Forest-Starma, having acquired the final 3% during 1999. Pioneer Forest has an 80.6% direct interest in Amgun-Forest, and Forest-Starma has an additional 18.8% interest. Pioneer Forest has a 72% direct interest in Udinskoye, and Forest-Starma owns the remaining 28%. Timber Operations. Forest-Starma harvests timber according to international sustainable development standards using advanced planning and implementation of the best available management practices as defined in the U.S. Forest Service stewardship guidelines and the United Nations Conference on Environment and Development principles. Production crews consisting, in the aggregate, of four harvesters, eight skidders, and five processors form the nucleus of the logging operation. The harvesters cut the trees, which are then skidded to processors that delimb and buck the timber into logs. The logs are hauled on company constructed roads by log trucks approximately 50 kilometers to a lower landing log yard for sorting and scaling prior to shipment. The lower landing is equipped with log loaders and other equipment necessary for maintaining the log yard and delivering sorted logs to the self constructed harbor for shipment. Sorted logs are delivered to the harbor based upon a manifest received from Forest-Starma's marketing agent, Rayonier, Inc. The logs are then delivered to the dock and placed on ships by crane. Forest-Starma has constructed and maintains a self-contained camp with living quarters for between 250 and 300 workers, a modern maintenance and parts facility, on site offices and sophisticated communications equipment. 10 12 Timber Production. Timber harvesting commenced in the first quarter of 1995, and the first shipments of timber occurred in the third and fourth quarters of 1995. In January 1997, Forest-Starma commenced commercial production of timber. The following chart shows Forest-Starma's total production and shipments of timber during the last three years.
1999 1998 1997 ---- ---- ---- Timber produced (m(3))............... 313,000 248,000 257,000 Timber shipped (m(3))................ 336,000 280,000 194,000
A three-year financial summary for the timber business segment is shown below:
1999 1998 1997 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Revenues............................. $14.4 $ 10.5 $11.9 Net Income (Loss).................... $(6.7) $(18.7) $(6.7) Total Assets......................... $41.3 $ 52.9 $51.0
Customers. In 1999, Forest-Starma shipped 56% of its timber to ten unaffiliated customers in South Korea, 35% of its timber to six unaffiliated customers in Japan and 9% of its timber to three unaffiliated customers in China. Employees. At February 1, 2000, Forest-Starma had 479 Russian employees. In addition, our employment company subsidiary seconds expatriate employees and consultants to Forest-Starma. These employees are not unionized nor are they a party to a collective bargaining agreement. Salaries are determined annually based on the prevailing market prices for timber industry employees within the region. Insurance. In connection with our investment in Forest-Starma, we maintain Overseas Private Investment Corporation ("OPIC") political risk insurance in an amount that would protect 90% of our equity investment and loans reduced by cumulative losses. In addition, we have secured OPIC business income loss insurance of up to $5 million for Forest-Starma. Amgun-Forest and Udinskoye. The Amgun-Forest timber project is located in the Polina Osipenko District of the Khabarovsk Territory, approximately 150 kilometers northwest of the city of Komsomolsk-on-Amur and further inland than Forest-Starma. Duharian Larch, Yeddo Spruce and Amur Fir are the principal commercial tree species in the project area, with larch constituting approximately 67% of the exportable product and whitewood (Yeddo Spruce and Amur Fir together) constituting the balance. The Udinskoye timber project is also located in the Polina Osipenko District of the Khabarovsk Territory, west of the Amgun-Forest timber project. Recent Developments. During the period between January and mid-April, the Siziman harbor typically is frozen. In January 2000, Forest-Starma entered into an agreement with its sales agent to receive a 50% prepayment for production during this period. This arrangement allows Forest-Starma to cover ongoing expenditures prior to commencement of the shipping season. We are actively exploring strategic alternatives with respect to our interest in the timber business. VENTURE CAPITAL U.S. VENTURE CAPITAL OPERATIONS We were engaged in venture capital investment and management in the U.S. for a number of years through our wholly owned subsidiary, Pioneer Capital Corporation, a majority-owned limited partnership, Pioneer Ventures Limited Partnership, and Pioneer Ventures Limited Partnership II, an institutional investor fund in which the Company had a 14% interest. In March 1999, we sold our domestic venture capital business for $34.9 million, resulting in a loss of $3.4 million. We used the proceeds from the sale to repay loans from the Small Business Administration and to reduce debt outstanding under our revolving credit facility. 11 13 POLISH VENTURE CAPITAL OPERATIONS In 1995, we organized two limited partnerships, Pioneer Poland U.S. L.P. ("PPUSLP") and Pioneer Poland UK L.P. ("PPUKLP"), for the purpose of raising funds for venture capital investment in Poland. During 1995, PPUSLP and PPUKLP (collectively, the "Pioneer Poland Fund") raised $60 million in commitments from U.S. and European investors. We have invested approximately $4.1 million in these limited partnerships. This investment provides the Company with a 7% indirect interest in PPUSLP and a 9% indirect interest in PPUKLP. At December 31, 1999, Pioneer Poland Fund held investments valued at approximately $39.9 million in 10 privately held Polish companies, had committed contractually to invest an additional $1.0 million in these companies and had reserved an additional $7.5 million for future financing rounds of the existing portfolio. Pioneer Poland US (Jersey) Limited, our indirect wholly owned subsidiary, manages the Pioneer Poland Fund. REAL ESTATE MANAGEMENT AND ADVISORY SERVICES In 1996, we established a wholly owned subsidiary, Pioneer Real Estate Advisors, Inc. ("Pioneer Real Estate"), to provide real estate advisory and management services to institutional investors and corporations in the U.S. and in Central and Eastern Europe, primarily Russia and Poland. Pioneer Real Estate is based in Boston and conducts its operations in Russia through a representative office in Moscow and in Poland through a wholly owned subsidiary. Pioneer Real Estate is currently pursuing two primary objectives. First, it seeks to invest and manage capital in the commercial real estate markets of Central and Eastern Europe on behalf of pooled investment vehicles, individual institutional investors and the Company. Second, it seeks to provide advisory services, including property management, facilities management, development management and feasibility and valuation analysis, to the pooled investment vehicles it manages and to third parties. In October 1999, Pioneer Real Estate closed a $33.5 million Polish real property fund (the "Polish Real Estate Fund") to invest in a diversified portfolio of commercial real estate in Poland, including office space, warehouse/distribution centers and retail centers. Pioneer Real Estate Advisors Poland Sp. z o.o., a limited liability company that Pioneer Real Estate established in 1996, provides professional real estate investment advice to the Polish Real Estate Fund. Pioneer Real Estate has invested $285,000 in the Polish Real Estate Fund and has committed to invest an additional $5.4 million. The other investors, which are Polish and non-U.S. institutional investors, have invested a total of $1.39 million and have committed to invest the remainder of the $33.5 million. In May 1998, Pioneer Real Estate, together with its partner, Banc One Capital Corporation, established a pooled investment vehicle (the "PBO Property Fund") sponsored by OPIC. The PBO Fund will invest in commercial property projects in Central and Eastern Europe and the newly independent states of the former Soviet Union. The PBO Property Fund will be funded with up to $80 million of equity investments from institutional investors and up to $160 million of debt financing guaranteed by OPIC. Pioneer Real Estate has committed to invest $4 million in the PBO Property Fund and has funded $1.5 million of that commitment. Since the inception of the PBO Property Fund in mid 1998, the PBO Property Fund has been seeking capital commitments from investors. Pioneer Real Estate expects to close this fund by April 2000. Through its representative office in Moscow, Pioneer Real Estate manages the Meridian Commercial Towers, an 18 story office tower located in Northern Moscow, which is owned by the First Investment Fund. As of February 1, 2000, Pioneer Real Estate had 36 employees. COMPETITION Venture Capital. The venture capital industry is extremely competitive. In the process of investing and attempting to raise funds from third parties, we must compete with a large number of venture capital firms, many of which have substantially larger staffs, more experience in raising funds, and more capital to invest. Real Estate Management and Advisory Business. The real estate management and advisory business both in the United States and abroad is extremely competitive. Pioneer Real Estate must compete with a large number of real estate firms, many of which have been in existence for many years and have substantially more resources than those available to Pioneer Real Estate. 12 14 DISCONTINUED OPERATIONS GOLD MINING BUSINESS During the second quarter of 1999, we reflected the gold mining segment as a discontinued operation. The gold mining segment consists of Pioneer Goldfields Limited, a corporation organized under the laws of Guernsey, Channel Islands ("Pioneer Goldfields"), and its 90%-owned Ghanaian operating subsidiary, Teberebie Goldfields Limited ("TGL"), and Closed Joint Stock Company "Tas-Yurjah Mining Company," a Russian company in which we have a 95% beneficial interest. Losses from the discontinued gold mining operations were $72.3 million in 1999, including $18.7 million from operations and $53.6 million from the estimated loss on the disposition of the gold mining segment. We engaged the services of an investment banking firm to sell Pioneer Goldfields, including its African exploration rights and its 90% interest in TGL. We continue to actively negotiate a possible sale, although we can provide no assurance that a sale will occur. Regardless if a sale is consummated or not we are proceeding with an orderly closure of the mine. All mining operations ceased at the end of 1999, and all processing activities will be completed by the end of the first half of 2000. A three-year financial summary for the gold mining business segment is shown below:
1999 1998 1997 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Revenues................................ $ 76.7 $ 77.3 $ 89.5 Net Income (Loss)....................... $(72.3) $(19.8) $ (2.4) Total Assets.................. $101.8 $131.4 $152.9
Gold Production and Sales. Set forth below is a chart showing TGL's gold shipments for the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997 (OUNCES) (OUNCES) (OUNCES) ------------- ------------- ------------- TGL Gold Shipments...................... 276,000 253,000 263,000
The average realized price of gold sold by TGL during the past three years is shown in the chart below:
1999 1998 1997 (PER OUNCE) (PER OUNCE) (PER OUNCE) ------------- ------------- ------------- Average Price of Gold Sold.............. $278 $305 $340
In 1998 and 1997, the average realized price of gold includes proceeds from the sale of floor program options of $12 per ounce and $15 per ounce, respectively. TGL's cash costs per ounce and total costs per ounce for 1999, 1998 and 1997 are summarized on the following table:
1999 1998 1997 ------------- ------------- ------------- Cash Costs Per Ounce.................... $203 $284 $230 Total Costs Per Ounce................... $336 $409 $337
Exploration Activities of Pioneer Goldfields Since the end of 1993, in addition to continuing to develop the Teberebie mine, Pioneer Goldfields has engaged in exploration activities in the Republic of Ghana and in other African countries. These activities were conducted by TGL in Ghana and by Pioneer Goldfields in Niger. During the fourth quarter of 1999, we scaled down exploration activities in Ghana and Niger. In 1999, 1998 and 1997, Pioneer Goldfields incurred exploration costs of approximately $1.3 million, $1.8 million and $1.9 million, respectively. Of these amounts, approximately $1.1 million, $1.4 million and $1.7 million related to exploration activities outside of Ghana in 1999, 1998 and 1997, respectively. 13 15 Exploration Activities of Tas-Yurjah Mining Company In 1994, we entered into a joint venture, Closed Joint Stock Company "Tas-Yurjah Mining Company" ("Tas-Yurjah"), with a Russian company to explore potential gold mining properties in the Khabarovsk Territory of the Russian Far East. We currently own a 94.5% direct interest and a 0.59% indirect interest in Tas-Yurjah. In 1995, Tas-Yurjah secured a license to conduct exploration activities over a 240 square kilometer area (the "licensed area"). We are actively exploring strategic alternatives with respect to our interest in Tas-Yurjah. At December 31, 1999, we had spent a total of approximately $6.4 million for exploration work related to Tas-Yurjah, $1.0 million of which we spent in 1999. POWDERED METALS We reflected our powdered metals business as a discontinued operation in the second quarter of 1999 and sold this business for nominal value at the end of the third quarter of 1999. We incurred $1.4 million of expenses in 1999 associated with these operations, including $0.9 million from the loss on the disposition of this business. RUSSIAN BANKING OPERATIONS In the third quarter of 1998, we liquidated our Russian banking operations. We reported losses of $6.5 million in 1998 and losses of $0.5 million in 1997 for this discontinued operation. In December 1998, we sold our stock in the bank to an unrelated third party. EMPLOYEES We employ a total of 2,186 employees worldwide, including 704 at our headquarters in Boston. We believe that we have good relations with our employees throughout our worldwide locations. 14 16 ITEM 2. DESCRIPTION OF PROPERTY. Our principal properties represent fixed assets at our headquarters in Boston, and our timber production facilities in the Russian Far East. Additionally, we lease properties in several locations for our financial services operations, including Poland, Ireland, the Czech Republic, Russia, Germany and Switzerland. The Company and its subsidiaries conduct their principal operations from leased premises with approximately 156,121 square feet at 60 State Street, Boston, Massachusetts, under two leases. The first to expire of these leases (which covers substantially all of the space) expires in 2002, with two five-year renewal options. The rent expense for these premises was approximately $6.0 million in 1999. After expansion in the last year, we believe that our facilities are adequate for our current needs and that additional space will be available as needed. We recently signed a non-binding letter of intent to lease approximately 80,000 square feet of office space outside of Boston and continue to negotiate a lease agreement. We plan to move some of our operations departments to this new space by the end of 2000. The lease would expire in 2010, with two five-year renewal options. Our wholly owned subsidiary, Forest-Starma, is pursuing the development of timber production in the Khabarovsk Territory of Russia under three long-term (49 years) leases comprising 390,100 hectares (approximately 964,000 acres) in the aggregate with annual cutting rights of 555,000 cubic meters. Amgun-Forest and Udinskoye, the Company's other majority-owned Russian timber ventures, each have a long-term lease (49 years) relating to timber harvesting. The Amgun-Forest lease covers 485,400 hectares (approximately 1,200,000 acres) with annual cutting rights of 350,000 cubic meters. The Udinskoye lease covers 201,000 hectares (approximately 497,000 acres) with annual cutting rights of 300,000 cubic meters. ITEM 3. LEGAL PROCEEDINGS. There are no material legal proceedings to which the Company or its subsidiaries is a party or of which any of their property is subject, other than ordinary routine litigation incidental to the Company's businesses. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 15 17 EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the names and ages of the executive officers of the Company, and a description of the positions and offices each holds with the Company and its significant subsidiaries.
NAME AGE POSITIONS WITH THE COMPANY AND ITS SIGNIFICANT SUBSIDIARIES ---- --- ------------------------------------------------------------ John F. Cogan, Jr. ....... 73 President, Chief Executive Officer and Chairman of the Board of the Company since 1962. Chairman of Pioneer Management since 1993 and President of Pioneer Management from 1962 to 1993. Director of Pioneer Management since 1962. Chairman and Director of Pioneer Distributor. Chairman, President and Trustee of each of the registered investment companies in the Pioneer Family of Mutual Funds. President and Director of Pioneer International, Pioneer Omega and Pioneer First Russia. Director of Pioneer Real Estate, First Investment Fund, Pioneer Forest, and PIOGlobal Corporation. Chairman and Director of Pioneer Goldfields, TGL, Forest-Starma, and Global Funds Distributor. Chairman of Supervisory Board of Pioneer First Polish, Pioneer Czech and Pioneer Fonds Marketing. Director of Pioneer Ireland and each of the Irish Funds. Member of Supervisory Board of Pioneer Pension. Of Counsel to the Boston law firm, Hale and Dorr LLP, counsel to the Company. Eric W. Reckard........... 43 Executive Vice President and Chief Financial Officer of the Company since June 1999. Treasurer of the Company, Pioneer Distributor, Pioneer Management, Pioneering Services, Pioneer International, Pioneer Real Estate, Pioneer Omega and Pioneer First Russia. Treasurer of each of the registered investment companies in the Pioneer Family of Mutual Funds. Vice President of Corporate Finance from February 1999 to June 1999. Manager of Fund Accounting, Business Planning and Internal Audit from September 1996 to February 1999. Manager of Fund Accounting and Compliance from May 1994 to September 1996. Assistant Treasurer of each of the registered investment companies in the Pioneer Family of Mutual Funds from April 1994 to June 1999. Stephen G. Kasnet......... 54 Executive Vice President of the Company since 1998. President of the Company's business unit, Pioneer Global Investments, since 1998. Vice President of the Company from 1995 until 1998. President of Pioneer Real Estate since January 1996. Director of Pioneer Real Estate, Pioneer Goldfields, TGL, Pioneer Forest and Forest-Starma. Trustee and Vice President of Pioneer Real Estate Shares and Vice President of Pioneer Variable Contracts Trust. Previously, Managing Director, First Winthrop Corporation and Winthrop Financial Associates. Chairman of the Board of Warren Bancorp and Warren Five Cents Savings Bank and Director of Bradley Real Estate, Inc. Alicja K. Malecka......... 53 Executive Vice President of the Company since 1998. President of the Company's business unit, Pioneer International Financial Services, since 1998. Vice President of the Company since 1992. Senior Vice President of Pioneer International and Vice President of Pioneer Real Estate. Director and Vice President of Pioneer First Russia and Director of First Investment Fund. Chairman of Pioneer First Polish and the Polish Funds. Chairman of Supervisory Board of Pioneer Pension and Pioneer Nationwide. Member of the Supervisory Board of PFSL, Pioneer Czech and Pioneer Asset Management S.A.
16 18
NAME AGE POSITIONS WITH THE COMPANY AND ITS SIGNIFICANT SUBSIDIARIES ---- --- ------------------------------------------------------------ William H. Smith, Jr. .... 64 Executive Vice President -- Global Operations and Technology of the Company since 1998. Vice President of the Company and Director of Pioneering Services since 1985. Vice President and Director of Pioneer International. Director of Pioneer Ireland and each of the Irish Funds. Chairman of the Supervisory Board of PFSL. Member of the Supervisory Board of Pioneer Czech. David D. Tripple.......... 56 Executive Vice President of the Company since 1986. President of the Company's business unit, Pioneer Investment Management, since 1998. Director of the Company since 1986. President of Pioneer Management since 1993 and Director of Pioneer Management since 1986. Executive Vice President and Chief Investment Officer of Pioneer Management from 1986 to 1993. Executive Vice President and Trustee of each of the registered investment companies in the Pioneer Family of Mutual Funds. Director of Pioneer Distributor, Pioneer International, Pioneer Real Estate, PIOGlobal Corporation, Pioneer Omega, Pioneer Ireland and each of the Irish Funds. Member of Supervisory Board of Pioneer First Polish, Pioneer Czech and Pioneer Asset Management, S.A. Adriana Stadecker......... 53 Senior Vice President and Director of Human Resources since October 1999. Assistant Secretary of PIOGlobal Corporation. Previously, Director of Human Resources at BTR plc from 1997 to 1999 and Founder/President of Epic International from 1994 to 1997. Robert P. Nault........... 36 Senior Vice President of the Company since 1998. General Counsel and Assistant Secretary of the Company since 1995. Secretary of Pioneer Real Estate, Pioneer Forest and PIOGlobal Corporation. Assistant Secretary of each of the registered investment companies in the Pioneer Family of Mutual Funds, Pioneer Management, Pioneer Distributor, Pioneering Services, Pioneer International, Pioneer Omega, Pioneer First Russia, Pioneer Goldfields, and Pioneer Global Funds Distributor. Previously, Junior Partner of the Boston law firm, Hale and Dorr LLP, counsel to the Company. Joseph P. Barri........... 53 Secretary of the Company since 1978. Secretary of each of the registered investment companies in the Pioneer Family of Mutual Funds, Pioneer Management, Pioneer Distributor, Pioneering Services, Pioneer Omega, Pioneer First Russia and Pioneer International. Senior Partner of the Boston law firm, Hale and Dorr LLP, counsel to the Company.
17 19 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. QUARTERLY FINANCIAL DATA
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER --------- --------- --------- --------- DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS 1999 Total revenues and sales.......................... $ 57,759 $ 63,633 $ 64,109 $ 64,403 --------- --------- --------- --------- Net income (loss) from continuing operations...... (2,404) (377) 822 4,784 Net income (loss) from discontinued operations.... (6,044) (24,794) (42,844) -- Cumulative effect of change in accounting principle....................................... (12,112) -- -- -- --------- --------- --------- --------- Net income (loss)................................. ($ 20,560) ($ 25,171) ($ 42,022) $ 4,784 ========= ========= ========= ========= Per common share: Earnings (loss) from continuing operations...... ($ 0.09) ($ 0.01) $ 0.03 $ 0.18 Earnings (loss) from discontinued operations.... ($ 0.24) ($ 0.96) ($ 1.63) -- Cumulative effect of change in accounting principle.................................... ($ 0.47) -- -- -- --------- --------- --------- --------- Total earnings (loss)........................... ($ 0.80) ($ 0.97) ($ 1.60) $ 0.18 ========= ========= ========= ========= Cash dividends declared......................... -- -- -- -- ========= ========= ========= ========= Market price range:* High......................................... $ 21 1/8 $ 19 1/4 $ 18 3/4 $ 17 3/4 Low.......................................... $14 13/16 $14 13/16 $ 14 1/8 $ 11 3/4 1998 Total revenues and sales.......................... $ 54,519 $ 64,324 $ 65,964 $ 62,738 --------- --------- --------- --------- Net income (loss) from continuing operations...... 6,491 (492) (7,789) (4,611) Net income (loss) from discontinued operations.... (1,144) (11,638) (8,688) (5,597) --------- --------- --------- --------- Net income (loss)................................. $ 5,347 ($ 12,130) ($ 16,477) ($ 10,208) ========= ========= ========= ========= Per common share: Earnings (loss) from continuing operations...... $ 0.26 ($ 0.02) ($ 0.31) ($ 0.18) Earnings (loss) from discontinued operations.... ($ 0.05) ($ 0.46) ($ 0.34) ($ 0.22) --------- --------- --------- --------- Total earnings (loss)........................... $ 0.21 ($ 0.48) ($ 0.65) ($ 0.40) ========= ========= ========= ========= Cash dividends declared......................... $ 0.10 $ 0.10 $ -- $ -- ========= ========= ========= ========= Market price range:* High......................................... $ 31 1/4 $ 33 $ 28 1/8 $ 19 3/4 Low.......................................... $ 25 1/4 $ 25 3/16 $ 15 1/16 $ 11 1/2
- --------------- * The Company's common stock is quoted on The Nasdaq Stock Market(R) under the symbol PIOG. Prices reflect the closing price of the common stock on The Nasdaq Stock Market(R). At March 1, 2000, the Company had approximately 5,000 shareholders of record. 18 20 ITEM 6. SELECTED FINANCIAL DATA. ASSETS UNDER MANAGEMENT AT DECEMBER 31:
1999 1998 1997 1996 1995 ------- ------- ------- ------- ------- DOLLARS IN MILLIONS U.S. Funds....................................... $23,364 $21,985 $19,635 $15,704 $12,701 Irish Funds...................................... 551 398 226 54 5 Closed-end and subadvised funds and private institutional accounts*........................ 158 574 691 769 764 ------- ------- ------- ------- ------- 24,073 22,957 20,552 16,527 13,470 Other funds...................................... 418 416 489 454 275 ------- ------- ------- ------- ------- Total.................................. $24,491 $23,373 $21,041 $16,981 $13,745 ======= ======= ======= ======= =======
- --------------- * Excludes assets of funds managed by foreign joint ventures and venture capital pools. SALES OF MUTUAL FUND SHARES
YEAR ENDED DECEMBER 31, ----------------------------------------------- 1999 1998 1997 1996 1995 ------- ------- ------- ------- ------- DOLLARS IN MILLIONS U.S. REGISTERED MUTUAL FUNDS: Sales*........................................... $ 3,691 $ 3,971 $ 2,866 $ 2,602 $ 1,752 Redemption of shares............................. 4,005 2,410 2,106 1,431 1,050 ------- ------- ------- ------- ------- Net sales of shares.............................. $ (314) $ 1,561 $ 760 $ 1,171 $ 702 ======= ======= ======= ======= =======
YEAR ENDED DECEMBER 31, ----------------------------------------------- 1999 1998 1997 1996 1995 ------- ------- ------- ------- ------- DOLLARS IN MILLIONS NON-U.S. REGISTERED MUTUAL FUNDS: Sales*........................................... $ 171 $ 241 $ 410 $ 217 $ 25 Redemption of shares............................. 193 160 147 81 381 ------- ------- ------- ------- ------- Net sales of shares.............................. $ (22) $ 81 $ 263 $ 136 $ (356) ======= ======= ======= ======= =======
- --------------- * Includes reinvestment of dividends, but excludes money market funds and funds managed by foreign joint ventures. 19 21 FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS Results of Operations Revenues and sales............... $ 249,904 $ 247,545 $ 241,029 $ 145,867 $ 106,092 Costs and expenses............... 216,098 241,432 194,050 131,134 92,743 Unrealized and realized (gains) losses on venture capital and marketable securities investments, net............... 1,082 (4,418) (27,460) (12,279) (9,345) Interest expense................. 7,013 11,897 8,629 3,181 746 Equity in (earnings) losses of affiliated companies........... 11,291 -- -- -- -- Public offering costs............ -- -- -- -- 4,863 ----------- ----------- ----------- ----------- ----------- Income (loss) from continuing operations before provision for income taxes and minority interest....................... 14,420 (1,366) 65,810 23,831 17,085 Provision for income taxes....... 9,256 9,384 28,202 10,405 7,820 ----------- ----------- ----------- ----------- ----------- Income (loss) from continuing operations before minority interest....................... 5,164 (10,750) 37,608 13,426 9,265 Minority interest................ 2,339 (4,349) 5,365 576 1,158 ----------- ----------- ----------- ----------- ----------- Net income (loss) from continuing operations..................... 2,825 (6,401) 32,243 12,850 8,107 Net income (loss) from discontinued operations........ (73,682) (27,067) (3,077) 5,987 14,704 Cumulative effect of change in accounting principle........... (12,112) -- -- -- -- ----------- ----------- ----------- ----------- ----------- Net income (loss)................ $ (82,969) $ (33,468) $ 29,166 $ 18,837 $ 22,811 =========== =========== =========== =========== =========== Diluted earnings (loss) per share: Continuing operations.......... $ 0.11 $ (0.25) $ 1.26 $ 0.50 $ 0.32 Discontinued operations........ (2.82) (1.07) (0.12) 0.24 0.58 Cumulative effect of change in accounting principle........ (0.46) -- -- -- -- ----------- ----------- ----------- ----------- ----------- Total diluted earnings (loss) per share..... $ (3.17) $ (1.32) $ 1.14 $ 0.74 $ 0.90 =========== =========== =========== =========== =========== Cash dividends per share......... $ -- $ 0.20 $ 0.40 $ 0.40 $ 0.40 =========== =========== =========== =========== =========== Diluted shares outstanding....... 26,184,000 25,350,000 25,630,000 25,460,000 25,311,000 =========== =========== =========== =========== =========== Long-term notes payable.......... $ 63,892 $ 99,035 $ 126,406 $ 101,890 $ 8,950 Total assets..................... $ 299,832 $ 439,218 $ 404,054 $ 378,533 $ 300,002 Stockholders' equity............. $ 87,098 $ 154,802 $ 183,687 $ 162,473 $ 150,343 Stockholders' equity per share... $ 3.28 $ 5.93 $ 7.28 $ 6.50 $ 6.05
20 22 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW Our consolidated financial statements include the Company's three strategic business units, Pioneer Investment Management, Pioneer International Financial Services and Pioneer Global Investments. We are in the process of disposing of our gold mining operations and as such are reporting those results as discontinued operations. Management's Discussion and Analysis of Financial Condition and Results of Operations is presented in four sections: Results of Operations, Liquidity and Capital Resources-General, Future Operating Results and Year 2000. RESULTS OF OPERATIONS CONSOLIDATED OPERATIONS In 1999, we reported net income from continuing operations of $2.8 million, or $0.11 per share, losses from discontinued gold mining and powdered metals operations of $73.7 million, or $2.82 per share, and the impact of the first quarter write-off of unamortized capitalized start-up costs of $12.1 million, or $0.46 per share, as a result of the required change in accounting principle. Also included in the 1999 net income from continuing operations is the one-time $3.4 million loss on the sale of our U.S. venture capital operations and the one-time $1.2 million gain on the sale of our Polish brokerage operations. In contrast, we reported 1998 losses from continuing operations of $6.4 million, or $0.25 per share, and losses from discontinued gold mining, powdered metals and Russian banking operations of $27.1 million, or $1.07 per share. For 1997, we had net income from continuing operations of $32.3 million, or $1.26 per share, and losses from discontinued gold mining and Russian banking operations of $3.1 million, or $0.12 per share. Worldwide assets under management were $24.5 billion at December 31, 1999, compared to $23.4 billion at December 31, 1998. Table 1 details revenues and net income by business segment for 1999, 1998 and 1997.
REVENUES NET INCOME -------------------------- ----------------------- 12 MONTHS ENDED 12 MONTHS ENDED DECEMBER 31, DECEMBER 31, -------------------------- ----------------------- BUSINESS SEGMENT 1999 1998 1997 1999 1998 1997 ---------------- ------ -------- ------ ------ ------ ----- (DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS) Pioneer Investment Management: Mutual Funds and Institutional Accounts.......... $203.9 $199.9 $168.5 $ 35.4 $ 30.7 $31.7 Sale of Class B Share Rights..................... -- 8.1 -- -- 5.3 -- ------ ------ ------ ------ ------ ----- 203.9 208.0 168.5 35.4 36.0 31.7 ------ ------ ------ ------ ------ ----- Pioneer International Financial Services: Russia........................................... 10.7 10.3 42.2 (1.6) (13.0) 5.8 Central and Eastern Europe....................... 18.3 15.3 15.5 (12.0) (4.2) 0.1 Asia............................................. -- -- -- (0.3) (0.5) -- ------ ------ ------ ------ ------ ----- 29.0 25.6 57.7 (13.9) (17.7) 5.9 ------ ------ ------ ------ ------ ----- Pioneer Global Investments: Venture Capital.................................. 1.1 2.2 2.3 (3.9) 1.3 4.9 Real Estate...................................... 1.5 1.2 0.6 (3.5) (2.9) (1.9) Timber........................................... 14.4 10.5 11.9 (6.7) (18.7) (6.7) ------ ------ ------ ------ ------ ----- 17.0 13.9 14.8 (14.1) (20.3) (3.7) ------ ------ ------ ------ ------ ----- Interest Expense and Other Expenses................ -- -- -- (4.6) (4.4) (1.6) ------ ------ ------ ------ ------ ----- Total From Continuing Operations............... 249.9 247.5 241.0 2.8 (6.4) 32.3 ------ ------ ------ ------ ------ ----- Discontinued Operations............................ -- -- -- (73.7) (27.1) (3.1) ------ ------ ------ ------ ------ ----- Change in Accounting Principle (Start-up costs).... -- -- -- (12.1) -- -- ------ ------ ------ ------ ------ ----- Totals...................................... $249.9 $247.5 $241.0 $(83.0) $(33.5) $29.2 ====== ====== ====== ====== ====== =====
21 23 PIONEER INVESTMENT MANAGEMENT ("PIM") 1999 Compared to 1998 PIM recorded 1999 net income of $35.4 million compared to 1998 net income of $36.0 million, including $30.7 million of operating income and a gain of $5.3 million from the sale of our rights to receive future distribution fees and deferred sales charges from the distribution of Class B Shares of our U.S. based mutual funds. Excluding the one-time gain, PIM's net income increased by $4.7 million, or 15%. PIM's assets under management at December 31, 1999 were approximately $24.1 billion compared to $23.0 billion at December 31, 1998. In 1999, we had U.S. registered mutual fund sales (including reinvested dividends) of $3.7 billion compared to $3.9 billion in 1998, and net redemptions of $0.3 billion compared to net sales of $1.6 billion in 1998. Since October 1998, we have sold each month, at a slight premium, additional rights arising from sales of Class B Shares. In consideration for the sale, we relinquish our rights to receive future distribution fees and certain sales charges. The net gain on these sales is included in distribution fee revenues. As a result, distribution fee revenues and the expenses associated with the amortization of Class B Share dealer advances have both decreased significantly in 1999. Excluding the 1998 Class B Share rights sale, revenues of $203.9 million in 1999 increased by $4.0 million. Management fee revenues of $139.2 million increased by $8.7 million, principally reflecting higher assets under management resulting from gains in the U.S. stock market. Revenues from underwriting commissions, distribution fees, and shareholder servicing fees decreased by $3.9 million to $53.5 million as increased shareholder service fees partially offset lower distribution fees. Costs and expenses increased by $0.2 million in 1999 to $149.7 million. Excluding the $8.4 million decrease in dealer advance amortization expenses in 1998, overall expenses increased by $8.6 million as a result of higher payroll costs, technology expenditures and higher costs related to additional office space. These increased expenses were incurred to strengthen the investment management team and improve operating efficiencies. PIM's effective tax rate for 1999 was 34% compared to 37% in 1998. The decrease was due primarily to increased profitability at Pioneer Management (Ireland) Limited, which is taxed at a lower effective rate. 1998 Compared to 1997 Net income increased by $4.3 million to $36.0 million. Results for 1998 included a one-time gain of $5.3 million from the sale of our rights to receive future distribution fees and deferred sales charges from the distribution of Class B Shares of our U.S. based mutual funds. PIM's assets under management at December 31, 1998 were approximately $23.0 billion compared to $20.6 billion at December 31, 1997. In 1998, we had U.S. registered mutual fund sales (including reinvested dividends) of $3.9 billion compared to $2.9 billion in 1997, and net sales of $1.6 billion compared to net sales of $0.8 billion in 1997. Revenues of $208.0 million in 1998 increased by $39.5 million, or 23%. Management fee revenues of $130.5 million increased by $19.6 million, principally reflecting higher assets under management resulting from gains in the U.S. stock market and an increase in net sales of mutual fund shares. We also earned $8.1 million in revenues from the sale of our Class B Share rights. Revenues from underwriting commissions, distribution fees, and shareholder servicing fees increased by $9.3 million to $57.4 million resulting from increased mutual fund sales, higher average Class B Share assets under management, and increased mutual fund shareowner accounts. Costs and expenses increased by $33.2 million in 1998 to $149.5 million. The expense increase resulted principally from higher payroll costs, mutual fund distribution expenses and technology expenses. PIM's effective tax rate for 1998 was 37% compared to 39% in 1997. 22 24 PIONEER INTERNATIONAL FINANCIAL SERVICES ("PIFS") 1999 Compared to 1998 During 1999, PIFS lost $13.9 million on revenues of $29.0 million compared to a loss of $17.7 million on revenues of $25.6 million in 1998. Revenues from PIFS' Russian financial services operations increased by $0.4 million in 1999 to $10.7 million. Net loss declined by $11.4 million to $1.6 million as operating expenses were significantly reduced with the closure of our brokerage business, along with reductions in other financial services staff. In addition, we had significant losses in 1998 of $6.3 million associated with cost basis adjustments of certain securities of Pioneer First Investment Fund, our majority-owned investment fund. These losses were recorded in response to the economic turmoil resulting in the Russian government's default on its sovereign debt and represent our prorata share of the fund write-down. Central European operations lost $12.0 million in 1999 on revenues of $18.3 million. A substantial portion ($11.6 million) of the 1999 loss occurred in Poland, $11.3 million of which related to our 70% owned pension subsidiary. Responding to Poland's pension reform initiative, the pension subsidiary incurred significant one-time start-up costs during 1999 in order to develop sales, distribution and processing capabilities. In addition, we recorded a one-time after-tax gain of $1.2 million on the sale of our Polish brokerage business, offset by losses in Polish financial services operations. Polish mutual fund assets under management decreased by approximately $23 million in 1999 to $327 million. 1998 Compared to 1997 During 1998, Pioneer International Financial Services ("PIFS") lost $17.7 million from continuing operations on revenues of $25.6 million compared to net income of $5.9 million on revenues of $57.7 million in 1997. Revenues from PIFS' Russian financial services operations decreased by $31.9 million to $10.3 million. Most of the decline ($31.0 million) resulted from the reduction in trading activity at our majority-owned brokerage business. The reduced revenues led to a loss of $4.0 million in 1998 in the brokerage business. In response, we announced in the first quarter of 1999 the closing of our Russian brokerage operations and reduced the remaining financial services staff and related expenses. In addition, we had significant losses of $6.3 million associated with cost basis adjustments of certain securities of Pioneer First Investment Fund, our majority-owned investment fund, to reflect the lack of liquidity in the trading market for Russian equity securities and the write-down of receivables of Pioneer First Investment Fund deemed uncollectible. Central European operations lost $4.2 million in 1998 compared to net income of $0.1 million in 1997. The 1998 loss was principally attributable to our Polish financial services operations. Polish mutual fund assets under management decreased by approximately $100 million in 1998 to $350 million. We also experienced losses associated with our Polish brokerage business and costs from our new subsidiary established to solicit accounts and manage pension assets under Poland's pension system reform program. PIONEER GLOBAL INVESTMENTS 1999 Compared to 1998 and 1997 During 1999, Pioneer Global Investments lost $14.1 million on revenues of $17.0 million compared to a loss of $20.3 million on revenues of $13.9 million in 1998. In 1997, Pioneer Global Investments lost $3.7 million on revenues of $14.8 million. In 1999, our U.S. venture capital operations lost $3.6 million, compared to net income of $3.3 million in 1998 and $6.3 million in 1997. In March 1999, we sold our direct investments and indirect interests of our U.S. venture capital business for $34.9 million, resulting in a loss of $3.4 million. We had losses from our Central and Eastern Europe venture capital operations of $0.3 million in 1999, $2.0 million in 1998 and $1.4 million in 1997, principally associated with development costs of venture capital funds. 23 25 Our real estate services operations reported losses of $3.5 million in 1999, $2.9 million in 1998 and $1.9 million in 1997. Most of the losses were attributable to costs associated with the development of our Polish and Eastern European real estate investments and related management operations. TIMBER BUSINESS The results of our timber business are substantially attributable to the operations of Closed Joint-Stock Company "Forest-Starma," the wholly owned principal operating subsidiary of Pioneer Forest, Inc. Forest-Starma harvests timber under a 49-year lease comprising 390,100 hectares (approximately 964,000 acres) in the aggregate with annual cutting rights of 555,000 cubic meters awarded in the Khabarovsk Territory of Russia. Forest-Starma has developed a modern logging camp, including a harbor, from which it exports timber to markets in the Pacific Rim. In 1995, Closed Joint-Stock Company "Amgun-Forest" and Closed Joint-Stock Company "Udinskoye," our other Russian timber ventures, each executed a long-term lease (50 years) relating to timber harvesting. The Amgun-Forest lease covers 485,400 hectares (approximately 1,200,000 acres) with annual cutting rights of 350,000 cubic meters while the Udinskoye lease covers 201,000 hectares (approximately 497,000 acres) with annual cutting rights of 300,000 cubic meters. As of December 31, 1999, Pioneer Forest, Inc. had an 80.6% direct interest and 18.8% indirect interest in Amgun-Forest and a 72% direct interest and 28% indirect interest in Udinskoye. While Forest-Starma harvests timber and incurs the resulting operating expenses throughout the year, it ships timber from mid-April through December. As a result, Forest-Starma has incurred, and expects to continue to incur, seasonal operating losses from fixed costs in the first quarter of our fiscal year. RESULTS OF OPERATIONS. In 1999, the timber business lost $6.7 million compared to a loss of $18.7 million in 1998. The decrease in losses was attributable principally to higher prices and production, and lower interest expense associated with an intercompany debt-to-equity conversion. In 1997, the timber business lost $6.7 million. Forest-Starma commenced commercial operations in January 1997. TIMBER PRODUCTION AND SALES We had timber shipments of 336,000 cubic meters in 1999, compared to 280,000 cubic meters in 1998 and 194,000 cubic meters in 1997. Production amounted to 313,000 cubic meters in 1999, compared to 248,000 cubic meters in 1998 and 257,000 cubic meters in 1997. Revenue increased to $14.4 million in 1999, up from $10.5 million in 1998 and $11.9 million in 1997. The average realized price of timber was $43 per cubic meter in 1999, compared to $37 in 1998 and $61 in 1997. We expect to produce over 325,000 cubic meters in 2000. Production in 1998 was hindered by a fire disruption which required the redeployment of logging crews and equipment to contain the fire. There was damage to approximately 7.8 million cubic meters of standing timber on 76,000 hectares, as well as 5,500 cubic meters of decked logs. We do not believe the fire damage will have a material impact on production over the next several years. We are continuing negotiations with the territorial government for both replacement and additional cutting rights. Cost of Goods Sold. Forest-Starma values inventory at the lower of cost or market under the full absorption accounting method and accordingly, includes operating costs such as payroll, fuel, spare parts, site related general and administrative expenses, depreciation and amortization and other taxes in the cost of goods sold. THIRD-PARTY DEBT Forest-Starma had $5.0 million of external debt outstanding at December 31, 1999. We are subject to recourse on this borrowing. Scheduled debt service for 2000 is expected to aggregate $1.7 million. 24 26 RECENT DEVELOPMENTS During the period between January and mid-April, the Siziman harbor is typically frozen. In January 2000, Forest-Starma entered into an agreement with its sales agent to receive a 50% prepayment for production during this period. This allows Forest Starma to cover ongoing expenditures prior to commencement of the shipping season. We are actively exploring strategic alternatives with respect to our interest in the timber business. DISCONTINUED OPERATIONS During the second quarter of 1999, we reflected the gold mining segment as a discontinued operation. The gold mining segment consists of Pioneer Goldfields Limited ("Pioneer Goldfields"), and its 90%-owned Ghanaian operating subsidiary, Teberebie Goldfields Limited ("TGL"), and Closed Joint-Stock Company "Tas-Yurjah Mining Company", our majority owned (95%) Russian subsidiary. We also reflected our powdered metals and Russian banking operations as discontinued operations in the second quarter of 1999 and the third quarter of 1998, respectively. The following table summarizes discontinued operations for the three years ended December 31:
YEAR ENDED DECEMBER 31, ------------------------- 1999 1998 1997 ------ ------ ----- (DOLLARS IN MILLIONS) Discontinued gold mining.................................... $(72.3) $(19.8) $(2.4) Discontinued powdered metals................................ (1.4) (0.8) (0.2) Discontinued Russian banking................................ -- (6.5) (0.5) ------ ------ ----- Total............................................. $(73.7) $(27.1) $(3.1) ====== ====== =====
GOLD MINING Losses from discontinued gold mining operations during 1999 were $72.3 million, including $18.7 million from operations and $53.6 million from the estimated loss on the disposition of the gold mining segment. We engaged the services of an investment banking firm to sell Pioneer Goldfields, including its African exploration rights and its 90% interest in TGL. We continue to actively negotiate a possible sale, although we can provide no assurance that a sale will occur. Regardless if a sale is consummated or not we are proceeding with an orderly closure of the mine. All mining operations ceased at the end of 1999, and all processing activities will be completed by the end of the first half of 2000. POWDERED METALS We sold, for nominal value, our powdered metals operations at the end of the third quarter of 1999. We incurred $1.4 million of expenses in 1999 associated with these operations, including $0.9 million from the loss on the disposition of this business. RUSSIAN BANKING OPERATIONS In the third quarter of 1998, we liquidated our Russian banking operations. Accordingly, losses of $0.5 million and $6.5 million were recorded in the years ended December 31, 1997 and 1998. In December 1998, we sold our stock in the bank to an unrelated third party. OTHER 1999 Compared to 1998 and 1997 We had net interest expense and other expenses of $4.6 million in 1999 compared to $4.4 million in 1998 and $1.6 million in 1997. The 1999 increase of $0.2 million resulted from an increase in the cost of borrowing 25 27 and increased expenses associated with modifications to debt agreements, partially offset by lower average outstanding balances and favorable adjustments to the market value of overhedged interest rate swaps. The 1998 increase of $2.8 million resulted principally from higher interest expense from increased borrowings and a mark-to-market adjustment on our interest rate protection agreements. LIQUIDITY AND CAPITAL RESOURCES -- GENERAL Liquid assets consisting of cash and marketable securities decreased by $7.3 million in 1999 to $40.6 million. Proceeds from the sale of our domestic venture operations ($34.9 million) and the sale of our Polish brokerage business ($1.6 million) were used principally for the repayment of corporate debt. Also, deconsolidation of the Polish pension subsidiary contributed to a $10.1 million reduction in reported cash during 1999. During 1999, we, along with our commercial banking syndicate, amended the senior credit facility, which, among other things reduced the availability under the facility from $80 million to $55 million and shortened the maturity date to March 31, 2001. For a description of our $55 million senior credit facility and $20 million senior notes, including interest rates and applicable covenants, see Note 9 (Notes Payable) in the Notes to Consolidated Financial Statements included elsewhere in the Annual Report on Form 10-K. At December 31, 1999, we had borrowed $40 million under the senior credit facility and had $20 million of senior notes outstanding. We believe that we are in sound financial condition, that we have sufficient liquidity from operations and financing facilities to cover short-term commitments and contingencies and that we have adequate capital resources to provide for long-term commitments. FUTURE OPERATING RESULTS From time to time, management may make forward-looking statements in this Annual Report on Form 10-K, in other documents that we file with the Securities and Exchange Commission (including those documents incorporated by reference into the Form 10-K), in press releases or in other public discussions. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for these statements. For this purpose, a forward-looking statement is any statement that is not a statement of historical fact. Forward-looking statements include those about our plans or strategies for our domestic and international financial services and global investment businesses, our anticipated revenue growth, changes we expect in the amount or composition of our assets under management, our anticipated expenses, our liquidity and capital resources and our expectations about market conditions. You can identify forward-looking statements by the words "may," "believes," "anticipates," "plans," "expects," "estimates" and similar expressions. Our forward-looking statements are based on currently available information and management's expectations of future results but necessarily involve certain assumptions. We caution readers that our assumptions involve substantial risks and uncertainties. Consequently, any forward-looking statement could turn out to be wrong. Many factors could cause actual results to differ materially from our expectations. Below we describe some of the important factors that could affect our revenues or results of operations. We recently hired two investment banks to review strategic alternatives that would maximize shareholder value, including the possible sale of the Company. Also recently, Lens Investment Management, LLC filed a preliminary proxy statement on Schedule 14A for the purpose of soliciting proxies for the election of its four nominees to the Company's Board of Directors to replace five of our directors. The news of these events creates uncertainty for our stockholders and employees. During these times of uncertainty, we are subject to the risks of reduced investor confidence, redemptions in our mutual funds, loss of business opportunities, and difficulty in hiring and retaining quality employees. We cannot guarantee that the uncertainties will not adversely affect our financial condition and financial results. A significant portion of our revenues comes from investment management fees and underwriting and shareholder services fees. Our success in the investment management and mutual fund share distribution businesses results primarily from good investment performance. If our investments perform well, we tend to 26 28 see higher sales of shares and lower redemptions of shares. Sales of shares result in increased assets under management, which, in turn, generate higher management fees. Good performance also attracts institutional accounts. On the other hand, relatively poor performance tends to cause decreased sales and increased redemptions and the loss of institutional accounts. As a result, we see a corresponding decrease in our revenues. In addition, economic and market conditions that are beyond our control can impact investment performance. Also, five of our mutual funds (including the two largest funds) have management fees that depend upon the funds' performance relative to the performance of established stock indexes. As a result, management fee revenues may be subject to unexpected volatility. The mutual fund industry is intensely competitive and continues to go through substantial consolidation. Many organizations in this industry are attempting to sell and service the same clients and customers, not only with mutual fund investments, but also with other financial services products. Many of our competitors have more products and product lines to offer, substantially greater assets under management, better financial resources and higher name recognition than we do. As a result, we could be at a disadvantage as we try to market our products to the same customers that our competitors are targeting. Our domestic investment management business is primarily dependent upon the contractual relationships between our U.S. mutual funds and our management company. If any of these agreements were terminated (for any reason, including a change of control of the Company) or not renewed on similarly favorable terms, our revenues and our investment management business would suffer greatly. The performance of a particular mutual fund depends in large part on the ability of its portfolio manager. Our ability to attract and retain talented portfolio managers and other key personnel is critical to our success in the investment management business. We cannot guarantee that we will be able to market our products successfully or maintain long-term relationships with our clients if we do not employ top quality personnel. The investment management business is subject to periodic shifts depending on market conditions and investor preferences. Firms like ours tend to focus on certain asset classes and certain management styles. Shifting trends in the investment management industry tend to favor firms that manage particular types of assets or use particular management styles. As a result, firms need to be able to adapt to these shifts in order to remain competitive. Historically, we have focused on "value" investing. We cannot guarantee that we will be successful as we broaden our asset classes and management styles in order to adapt to market demands. Our investment management operation is subject to extensive regulation in the United States, including regulation by the Securities and Exchange Commission and the National Association of Securities Dealers, Inc. Also, we are subject to the laws of non-U.S. jurisdictions and non-U.S. regulatory agencies or bodies. If we do not comply with applicable laws or regulations, we could suffer fines, suspension of personnel or other sanctions. Certain changes in laws or regulations or in government policies could have a material adverse effect on our business. We have several operations and investments outside of the United States, including the timber operations in the Russian Far East and the financial services operations in Eastern and Central Europe. Many factors unique to these foreign locations can have negative effects on our operations and investments there. Some of these factors are exchange controls, currency fluctuations, taxation, political and economic instability, ineffective regulatory oversight and laws or policies of the particular countries in which we have operations. We cannot guarantee that we will be able to obtain permits, authorizations, regulatory approvals or agreements to implement plans at our foreign projects in a manner or within time frames that make these plans economically feasible. Also, we do not know whether applicable laws or the governing political authorities in the relevant locations will change unfavorably or whether any such changes will cost us material amounts of money or effort. The commercial feasibility of Forest-Starma depends on a number of factors that we cannot control. Some of these factors are the price of timber, weather conditions, political instability in Russia and the strength of the Japanese and Korean economies, which are the primary markets for Forest-Starma's timber. 27 29 We continue to actively negotiate a possible sale of our gold mining operations, although we can provide no assurance that a sale will occur. If for any reason a sale is not consummated, our financial results and financial condition may be materially adversely affected. YEAR 2000 We did not experience any interruptions to our business or operations as a result of the transition to the year 2000, nor did we have to implement any of our contingency plans. Although we incurred costs in preparation for the transition, those costs did not affect our financial position in any material way. 28 30 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We monitor our exposure to adverse changes in interest rates, foreign currency exchange rates and the market price paid for timber. Historically, we have purchased certain derivative financial instruments to help mitigate the impact of adverse changes, or in some instances, to mitigate the impact of any changes. Our long term debt, taken together with the interest rate swaps for the senior credit facility, is at a fixed interest rate. Accordingly, our interest expense will not change as a result of changes in interest rates. However, the fair value of our long term debt will vary inversely with changes in interest rates. A 10% change in market interest rates will result in an approximate $1.0 million change in the fair value of our long term debt taken together with interest rate swaps. We are exposed to certain changes in foreign currency exchange rates. We conduct operations in Russia, the Czech Republic and Poland. The functional currency of our Russian operations is the U.S. dollar, while the functional currencies of the Czech and Polish operations are the respective local currencies. All of these operations have some costs denominated in the local currency, which acts as a natural hedge to the revenues denominated in local currencies. We conduct timber operations in Russia. The prices we receive for the timber products sold are denominated in U.S. dollars; however, as most of the timber produced is sold to the Asian markets, the U.S. dollar prices are influenced by the foreign currency exchange rates. The revenues of this business are also subject to changes in the market price paid for timber. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Company's financial statements required by this Item 8 are submitted as a separate section beginning on page F-1 at the end of this Annual Report on Form 10-K. The Pioneer Pension Fund Company Financial Statements are included as Exhibit 99 in the "Index of Exhibits" below. The schedule required by this Item 8 is included at Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 29 31 PART III ITEMS 10-13. The information required for Part III in this Annual Report on Form 10-K is incorporated by reference from the Company's definitive proxy statement for the Company's 2000 Annual Meeting of Stockholders. Such information will be contained in the sections of such proxy statement captioned "Security Ownership of Certain Beneficial Owners, Directors and Executive Officers," "Election of Directors," "Directors' Meetings and Fees," "Committee Meetings," "Executive Compensation," "Stock Option Grants and Exercises," "Certain Transactions" and "Compliance with Section 16 of the Securities Exchange Act of 1934." Information regarding executive officers of the Company is also furnished in Part I of this Annual Report on Form 10-K under the heading "Executive Officers of the Registrant." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are included as part of this Annual Report on Form 10-K. 1. FINANCIAL STATEMENTS: Reference is made to the Report of Independent Public Accountants, the Consolidated Financial Statements, the Notes to Consolidated Financial included in this Annual Report on Form 10-K at pages F-1 through F-24. 2. FINANCIAL STATEMENT SCHEDULES: Schedule II -- Valuation and Qualifying Accounts All other financial statement schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or the Notes thereto. Pioneer Pension Fund Company Financial Statements (included as Exhibit 99 in the "Index to Exhibits" below). 3. EXHIBITS: The exhibits filed with or incorporated into this Annual Report on Form 10-K are listed on the "Index to Exhibits" below. (b) Reports on Form 8-K: None. 30 32 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 21, 2000. THE PIONEER GROUP, INC. BY: /s/ JOHN F. COGAN, JR. ------------------------------------ JOHN F. COGAN, JR., President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JOHN F. COGAN, JR. Principal Executive Officer and March 21, 2000 - ----------------------------------------------------- Director JOHN F. COGAN, JR. /s/ ERIC W. RECKARD Principal Financial Officer and March 21, 2000 - ----------------------------------------------------- Principal Accounting Officer ERIC W. RECKARD /s/ JOHN D. CURTIN JR. Director March 21, 2000 - ----------------------------------------------------- JOHN D. CURTIN JR. /s/ MAURICE ENGLEMAN Director March 21, 2000 - ----------------------------------------------------- MAURICE ENGLEMAN /s/ ALYCE J. LEE Director March 21, 2000 - ----------------------------------------------------- ALYCE J. LEE /s/ W. REID SANDERS Director March 21, 2000 - ----------------------------------------------------- W. REID SANDERS /s/ ALAN J. STRASSMAN Director March 21, 2000 - ----------------------------------------------------- ALAN J. STRASSMAN /s/ JASKARAN S. TEJA Director March 21, 2000 - ----------------------------------------------------- JASKARAN S. TEJA /s/ DAVID D. TRIPPLE Director March 21, 2000 - ----------------------------------------------------- DAVID D. TRIPPLE /s/ JOHN H. VALENTINE Director March 21, 2000 - ----------------------------------------------------- JOHN H. VALENTINE
31 33 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of The Pioneer Group, Inc.: We have audited in accordance with generally accepted auditing standards, the financial statements of The Pioneer Group, Inc. and subsidiaries (the Company) included in this Form 10-K and have issued our report thereon dated February 4, 2000. Our report on the financial statements includes an explanatory paragraph with respect to the change in the accounting for start-up costs as discussed in Note 2 to the financial statements. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. This schedule listed in Item 14 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Boston, Massachusetts February 4, 2000 32 34 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (IN MILLIONS)
BALANCE AT CHARGED TO BEGINNING COSTS AND BALANCE AT OF YEAR EXPENSES DEDUCTIONS END OF YEAR ---------- ---------- ---------- ----------- Discontinued gold mining operations reserve for future losses, severance and closing costs, December 31, 1999................. $ -- $14.9 ($13.1)* $1.8
- --------------- * Consists of operating losses of $6.9 million and severance expense of $6.2 million in 1999. 33 35 INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT - ----------- ------- 3.1(17) -- Certificate of Incorporation, as amended 3.2* -- Amended and Restated By-Laws 10.1(15) -- Form of Management Contract with Pioneer Mutual Funds 10.2(15) -- Form of Investment Company Service Agreement with Pioneer Mutual Funds 10.3(1)(7) -- Retirement Benefit Plan and Trust 10.4(5)(7) -- 1988 Stock Option Plan, as amended 10.5(5) -- Lease, dated as of July 3, 1991, between the Trustees of 60 State Street and the Company 10.6(2)(7) -- Form of Employment Agreements with Regional Vice Presidents 10.7(22) -- Revised Form of Underwriting Contract with Pioneer Funds 10.8(3)(7) -- 1990 Restricted Stock Plan 10.9(4) -- Deed of Warranty, dated December 3, 1987, between the Government of Republic of Ghana, Teberebie Goldfields Limited and The Pioneer Group, Inc. 10.10(4) -- Lease, dated February 2, 1988, between the Government of the Republic of Ghana and Teberebie Goldfields Limited 10.11(4) -- Map of Mining Operations in Tarkwa, Ghana 10.12(6) -- Refining Agreement, dated as of August 23, 1993, between Teberebie Goldfields Limited and Metalor 10.13(6) -- OPIC Contract of Insurance Against Inconvertibility, Expropriation and Political Violence between OPIC and Pioneer Goldfields Limited, dated August 12, 1993 10.14(6) -- Credit Agreement, dated as of June 1, 1993, between Teberebie Goldfields Limited and Skandinaviska Enskilda Banken 10.15(8) -- Agreement, dated May 10, 1994, between Teberebie Goldfields Limited and Johnson Matthey PLC 10.16(8) -- Contract, dated May 30, 1994, among Timber Harvesting Equipment Sales, Inc., Joint-Stock Company "Forest-Starma" and the Company 10.17(8) -- Contract, dated August 4, 1994, among Morbark Northwest, Inc., Joint-Stock Company "Forest-Starma" and the Company 10.18(8) -- Contract, dated May 25, 1994, among Caterpillar Overseas S.A., Joint-Stock Company "Forest Starma" and the Company 10.19(8) -- OPIC Contract of Insurance Against Business Income Loss between OPIC and the Company, effective September 30, 1992, as amended (No. D581) 10.20(8) -- OPIC Contract of Insurance Against Business Income Loss between OPIC and the Company, effective September 30, 1992, as amended (No. D582) 10.21(8) -- OPIC Contract of Insurance Against Inconvertibility, Expropriation and Political Violence between OPIC and the Company, effective September 30, 1992 as amended (No. D547) 10.22(8) -- OPIC Contract of Insurance Against Inconvertibility, Expropriation and Political Violence between OPIC and the Company, effective September 30, 1992 (No. D545) 10.23(8) -- Consulting Agreement, dated as of January 2, 1995, between the Company and Pioneer First Polish Trust Fund Joint Stock Company ('Pioneer Poland') 10.24(8) -- Services Contract, dated January 1, 1994, between Pioneering Services Corporation and Financial Services Limited 10.25(8) -- Agreement, dated June 25, 1992, between Pioneer Poland and Bank Polska Kasa Opieka S.A. ('Bank Pekao') 10.26(8) -- Agreement, dated as of June 25, 1992, between Bank Pekao and Pioneer International Corporation 10.27(8) -- Agreement, dated June 25, 1992, between Bank Pekao and Pioneer Poland 10.28(8) -- Agreement, dated September 24, 1992, between Pioneer Poland and Financial Services Limited 10.29(9) -- Master Share Purchase Agreement dated as of April 7, 1995 by and among Pioneer Omega, Inc. and First Voucher Fund 10.30(9) -- Agreement dated as of April 7, 1995 by and among Pioneer Omega, Inc. and DOM Investment Company
34 36
EXHIBIT NO. EXHIBIT - ----------- ------- 10.31(9) -- Agreement dated as of April 7, 1995 by and among Pioneer Omega, Inc. and Moscow International Business Centre Limited 10.32(9) -- Stockholders Agreement dated as of April 11, 1995 by and among the Company and Moscow International Business Centre Limited 10.33(10) -- Collective Agreement dated as of July 3, 1995 between Teberebie Goldfields Limited and the Ghana Mineworkers Union of T.U.C. 10.34(11) -- Contract of Insurance Against Incontrovertibility, Expropriation and Political Violence dated September 29, 1995 between the Overseas Private Investment Corporation and the Company 10.35(7)(12) -- 1995 Restricted Stock Plan 10.36(12) -- Credit Agreement between Teberebie Goldfields Limited and Skandinaviska Enskilda Banken AB dated as of March 11, 1996 10.37(7)(13) -- 1995 Employee Stock Purchase Plan 10.38(13) -- Loan Agreement dated as of April 23, 1996, by and between Teberebie Goldfields Limited and Caterpillar Financial Services Corporation 10.39(13) -- Chattel Mortgage dated as of April 23, 1996, by and between Teberebie Goldfields Limited and Caterpillar Financial Services Corporation 10.40(13) -- Credit Agreement dated as of June 6, 1996, by and among the Company, Certain of its subsidiaries, the Lenders and The First National Bank of Boston, as agent for itself and the other Lenders 10.41(13) -- Loan Agreement dated as of May 16, 1996, by and between Teberebie Goldfields Limited and Caterpillar Financial Corporation 10.42(14) -- Sublease dated as of August 15, 1996, between the Company and Citizens Financial Group, Inc. 10.43(16) -- Subscription Agreement dated as of October 16, 1996, between Pioneer First Russia, Inc. and International Finance Corporation 10.44(16) -- Shareholders Agreement dated as of October 16, 1996, among Pioneer Omega, Inc. and Pioneer First Russia, Inc. and International Finance Corporation 10.45(16) -- Put and Call Agreement dated as of October 16, 1996, among Pioneer First Russia, Inc. and Pioneer Omega, Inc. and International Finance Corporation 10.46(16) -- Credit Facility Agreement dated 19th December, 1996, for Pioneer Real Estate Advisors, Inc. provided by Banque Societe Generale Vostok 10.47(16) -- First Amendment to Lease dated as of the 31st day of January 1994, by and between the Trustees of 60 State Street Trust and the Company 10.48(16) -- Second Amendment to Lease dated as of September 30, 1996, by and between The Trustees of 60 State Street Trust and the Company 10.49(16) -- Third Amendment to Lease dated as of November 15, 1996, by and between The Trustees of 60 State Street Trust and the Company 10.50(16) -- Finance Agreement dated as of October 25, 1996, between Teberebie Goldfields Limited and the Overseas Private Investment Corporation 10.51(16) -- Project Completion Agreement dated as of October 28, 1996, among Teberebie Goldfields Limited, the Company and Overseas Private Investment Corporation 10.52(16) -- Overseas Private Investment Corporation Contract of Insurance Against Inconvertibility, Expropriation and Political Violence between the Overseas Private Investment Corporation and Pioneer Omega, Inc. 10.53(17) -- Finance Agreement between Closed Joint-Stock Company "Forest-Starma" and Overseas Private Investment Corporation dated as of December 21, 1995 10.54(17) -- Project Completion Agreement among Closed Joint-Stock Company "Forest-Starma", the Company, International Joint-Stock Company "Starma Holding" and Overseas Private Investment Corporation dated as of December 21, 1995 10.55(17) -- Closed Joint-Stock Company "Forest-Starma" Promissory Note in the principal amount of $9.3 million dated as of July 1, 1996 10.56(17) -- Amendment to Finance Agreement dated as of June 24, 1996 between Closed Joint-Stock Company "Forest-Starma" and Overseas Private Investment Corporation
35 37
EXHIBIT NO. EXHIBIT - ----------- ------- 10.57(17) -- Amendment No. 1 to Credit Agreement dated as of April 23, 1997, among the Company, certain of its subsidiaries, the Lenders and The First National Bank of Boston 10.58(18) -- Amendment No. 2 to Credit Agreement dated as of June 30, 1997, by and among the Company, certain of its subsidiaries, the Lenders and BankBoston, N.A. f/k/a/ The First National Bank of Boston 10.59(18)(7) -- 1997 Stock Incentive Plan 10.60(19) -- Note Agreement dated as August 14, 1997 by and between the Company and The Travelers Insurance Company 10.61(20) -- Amendment No. 3 to Credit Agreement dated as of June 30, 1997, by and among the Company, certain of its subsidiaries, the Lenders and BankBoston, N.A. f/k/a/ The First National Bank of Boston 10.62(20) -- Investment Agreement dated as of February 11, 1998 by and between AS Eesti Forekspank and ZAO Pioneer Bank 10.63(20) -- Fourth Amendment to Lease dated as of September 11, 1997, by and between The Trustees of 60 State Street Trust and the Company 10.64(21) -- Amendment No. 4 to Credit Agreement dated as of April 21, 1998, by and among the Company, certain of its subsidiaries, the Lenders and BankBoston, N.A. f/k/a The First National Bank of Boston 10.65(21) -- Amendment No. 5 to Credit Agreement dated as of July 21, 1998, by and among the Company, certain of its subsidiaries, the Lenders and BankBoston, N.A. f/k/a The First National Bank of Boston 10.66(21) -- Amendment No. 6 to Credit Agreement dated as of September 30, 1998, by and among the Company, certain of its subsidiaries, the Lenders and BankBoston, N.A. f/k/a The First National Bank of Boston 10.67(21) -- Supplemental Agreement No. 1 to Note Agreement dated as of September 30, 1998, by and between the Company and Travelers Insurance Company 10.68(21) -- Supplemental Agreement No. 2 to Note Agreement dated as of September 30, 1998, by and between the Company and Travelers Insurance Company 10.69(21) -- Pioneer Program Master Agreement dated as of September 30, 1998, among the Company, certain of its subsidiaries, PLT Finance, L.P., Putnam, Lovell, DeGuardiola & Thornton, Inc., and Bankers Trust Company (Confidential Treatment Granted) 10.70(23) -- Amendment No. 7 to Credit Agreement dated as of December 30, 1998, by and among the Company, certain of its subsidiaries, the Lenders and BankBoston, N.A. f/k/a The First National Bank of Boston 10.71(23) -- Supplemental Agreement No. 3 to Note Agreement dated as of December 30, 1998, by and between the Company and Travelers Insurance Company 10.72(23)(7) -- 1998 Deferred Compensation Plan 10.73(23) -- Agreement dated as of December 7, 1998 between Closed Joint Stock Company "Forest Starma" and Rayonier Inc., and Amendment No. 1 thereto 10.74(23) -- Fifth Amendment to Lease dated as of December 31, 1997, by and between The Trustees of 60 State Street Trust and the Company 10.75(23) -- Sixth Amendment to Lease dated as of October 5, 1998, by and between the Trustees of 60 State Street Trust and the Company 10.76(23) -- Sublease Agreement dated as of March 5, 1999, by and between Leerink, Swann & Company and the Company 10.77(23) -- Asset Purchase Agreement dated as of March 18, 1999, by and between PCC Transfer Limited Partnership, Pioneer Capital Corporation, Pioneer Ventures Limited Partnership and the Company 10.78(24) -- Shareholders' Agreement dated April 8, 1999 between the Company and Nationwide Global Holdings, Inc. ("Nationwide") 10.79(24) -- Share Subscription Agreement dated as of April 8, 1999 between the Company, Nationwide and Pioneer Powszechne Towarzystwd Emerytalne S.A. 10.80(25) -- Amendment No. 8 to Credit Agreement dated as of June 30, 1999, by and among the Company, certain of its subsidiaries, the Lenders and BankBoston, N.A., f/k/a The First National Bank of Boston
36 38
EXHIBIT NO. EXHIBIT - ----------- ------- 10.81(25) -- Supplemental Agreement No. 4 to Note Agreement dated as of June 30, 1999, by and between the Company and Travelers Insurance Company 10.82(25) -- Amendment to Finance Agreement dated as of June 3, 1999 between Closed Joint-Stock Company "Forest-Starma" and Overseas Private Investment Corporation 10.83(25) -- Amendment to Project Completion Agreement dated as of June 3, 1999 among Closed Joint-Stock Company "Forest-Starma", the Company, Pioneer Forest, Inc., International Joint-Stock Company "Starma-Holding" and Overseas Private Investment Corporation 10.84(25) -- Agreement with Respect to Project Completion Agreement dated as of June 3, 1999 among Closed Joint-Stock Company "Forest-Starma", the Company, Pioneer Forest, Inc. and Overseas Private Investment Corporation 10.85(25) -- Contract of Pledge of Shares in Closed Joint-Stock Company "Forest Starma" dated as of June 3, 1999 between Pioneer Forest, Inc. and Overseas Private Investment Corporation 10.86(26) -- Shareholders Agreement dated as of April 8, 1999 between the Company and Nationwide Global Holdings, Inc. 10.87* -- Amendment No. 9 to Credit Agreement dated as of November 9, 1999, by and among the Company, certain of its subsidiaries, the Lenders and BankBoston, N.A., f/k/a The First National Bank of Boston 10.88* -- Amendment No. 10 to Credit Agreement dated as of December 13, 1999, by and among the Company, certain of its subsidiaries, the Lenders and BankBoston, N.A., f/k/a The First National Bank of Boston 10.89* -- Supplemental Agreement No. 5 to Note Agreement dated as of November 11, 1999, by and between the Company and Travelers Insurance Company 10.90* -- Amendment to Finance Agreement and Limited Waiver dated as of December 28, 1999 between Closed Joint-Stock Company "Forest-Starma" and Overseas Private Investment Corporation 10.91* -- Agreement with Respect to Project Completion dated as of December 28, 1999 among Closed Joint-Stock Company "Forest-Starma", the Company, Pioneer Forest, Inc., Pioneer Forest L.L.C. and Overseas Private Investment Corporation 10.92* -- Contract of Pledge of Shares dated as of December 28, 1999 between Pioneer Forest, L.L.C. and Overseas Private Investment Corporation 10.93* -- Agreement with Respect to Subordination Agreement dated as of December 28, 1999 among the Company, Pioneer Forest, Inc., Pioneer Forest, L.L.C., Closed Joint-Stock Company "Forest-Starma" and Overseas Private Investment Corporation 10.94(7)* -- Form of Executive Retention Agreement 21* -- Subsidiaries 23* -- Consent of Arthur Andersen LLP 27.99* -- Financial Data Schedule (1999) 27.98* -- Financial Data Schedule (1998) 27.97* -- Financial Data Schedule (1997) 99* -- Pioneer Pension Fund Company Financial Statements
- --------------- * Filed herewith (1) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1986 (File No. 0-8841). (2) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1988 (File No. 0-8841). (3) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1989 (File No. 0-8841). (4) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1990 (File No. 0-8841). (5) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 0-8841). 37 39 (6) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 0-8841). (7) Management contract or compensatory plan or arrangement filed as an exhibit to this Form pursuant to Items 14(a) and 14(c) of Form 10-K. (8) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 0-8841). (9) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 (File No. 0-8841). (10) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. (11) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. (12) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. (13) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. (14) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. (15) Incorporated herein by reference to the exhibits to the Registration Statement on Form N-1A for the Pioneer Micro Cap Fund (File Nos. 333-18639, 811-07985) filed December 23, 1996. (16) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. (17) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. (18) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. (19) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. (20) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1997. (21) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. (22) Incorporated herein by reference to the exhibits to the Registration Statement on Form N-1A for the Pioneer Fund (File Nos. 2-25980, 811-07613) filed October 30, 1998. (23) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (24) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999. (25) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. (26) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. 38 40 THE PIONEER GROUP, INC. INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Independent Public Accountants.................... F-1 Consolidated Statements of Operations -- Years Ended December 31, 1999, 1998 and 1997.......................... F-2 Consolidated Balance Sheets as of December 31, 1999 and 1998...................................................... F-3 Consolidated Statements of Changes in Stockholders' Equity -- Years Ended December 31, 1999, 1998 and 1997.... F-4 Consolidated Statements of Cash Flows -- Years Ended December 31, 1999, 1998 and 1997.......................... F-5 Notes to Consolidated Financial Statements.................. F-6
39 41 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of The Pioneer Group, Inc.: We have audited the accompanying consolidated balance sheets of The Pioneer Group, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Pioneer Group, Inc. and subsidiaries as of December 31, 1999 and 1998 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. As discussed in Note 2 to the financial statements, the Company changed its method of accounting for the costs of start-up activities in 1999. ARTHUR ANDERSEN LLP Boston, Massachusetts February 4, 2000 F-1 42 THE PIONEER GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ---------------------------------------- 1999 1998 1997 ------------ ----------- ----------- DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS Revenues and sales: Investment management fees................................ $ 147,188 $ 142,266 $ 121,372 Underwriting commissions and distribution fees............ 14,539 26,511 23,322 Shareholder service fees.................................. 43,740 31,610 28,002 Revenues from brokerage activities........................ 1,405 2,153 35,570 Gain on sale of B share rights............................ -- 8,132 -- Trustee fees and other income............................. 28,649 26,422 20,884 ----------- ----------- ----------- Revenues from financial services businesses............. 235,521 237,094 229,150 Timber sales.............................................. 14,383 10,451 11,879 ----------- ----------- ----------- Total revenues and sales........................... 249,904 247,545 241,029 ----------- ----------- ----------- Costs and expenses: Management, distribution, shareholder service and administrative expenses................................. 197,940 213,051 178,571 Timber operating costs and expenses....................... 18,158 28,381 15,479 ----------- ----------- ----------- Total costs and expenses........................... 216,098 241,432 194,050 ----------- ----------- ----------- Other (income) expense: Unrealized and realized (gains) losses on venture capital and marketable securities investments, net.............. 1,082 (4,418) (27,460) Equity in losses of affiliated companies.................. 11,291 -- -- Interest expense.......................................... 7,013 11,897 8,629 ----------- ----------- ----------- Total other (income) expense....................... 19,386 7,479 (18,831) ----------- ----------- ----------- Income (loss) from continuing operations before provision for income taxes and minority interest.................... 14,420 (1,366) 65,810 Provision for income taxes.................................. 9,256 9,384 28,202 ----------- ----------- ----------- Income (loss) from continuing operations before minority interest.................................................. 5,164 (10,750) 37,608 Minority interest........................................... 2,339 (4,349) 5,365 ----------- ----------- ----------- Net income (loss) from continuing operations before cumulative effect of change in accounting principle....... 2,825 (6,401) 32,243 Net income (loss) from discontinued operations.............. (73,682) (27,067) (3,077) Cumulative effect of change in accounting principle (start-up costs, net of income taxes of $261)............. (12,112) -- -- ----------- ----------- ----------- Net income (loss)........................................... $ (82,969) $ (33,468) $ 29,166 =========== =========== =========== Basic earnings (loss) per share: Continuing operations..................................... $ 0.11 $ (0.25) $ 1.29 Discontinued operations................................... (2.84) (1.08) (0.12) Cumulative effect of change in accounting principle....... (0.47) -- -- ----------- ----------- ----------- Total basic earnings (loss) per share.............. $ (3.20) $ (1.33) $ 1.17 =========== =========== =========== Diluted earnings (loss) per share: Continuing operations..................................... $ 0.11 $ (0.25) $ 1.26 Discontinued operations................................... (2.82) (1.07) (0.12) Cumulative effect of change in accounting principle....... (0.46) -- -- ----------- ----------- ----------- Total diluted earnings (loss) per share..................... $ (3.17) $ (1.32) $ 1.14 =========== =========== =========== Basic shares outstanding.................................... 25,931,000 25,148,000 24,873,000 =========== =========== =========== Diluted shares outstanding.................................. 26,184,000 25,350,000 25,630,000 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-2 43 THE PIONEER GROUP, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ---------------------- 1999 1998 -------- -------- DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS ASSETS Current assets: Cash and cash equivalents................................... $ 36,740 $ 44,212 Restricted cash............................................. 99 5,512 Investment in marketable securities, at fair value.......... 3,850 3,638 Receivables: From securities brokers and dealers for sales of mutual fund shares............................................. 9,429 14,072 From Pioneer Family of Mutual Funds....................... 20,610 17,334 For securities sold....................................... 194 1,089 Other..................................................... 8,022 15,247 Timber inventory............................................ 3,908 3,585 Other current assets........................................ 9,749 13,310 Net current assets of discontinued operations............... -- 5,233 -------- -------- Total current assets................................ 92,601 123,232 -------- -------- Noncurrent assets: Cost of acquisitions in excess of net assets acquired (net of accumulated amortization of $13,842 in 1999 and $12,071 in 1998).................................................. 14,539 16,572 Long-term venture capital investments, at fair value (cost $55,504 in 1999 and $117,547 in 1998)..................... 51,093 129,560 Long-term investments, at cost.............................. 6,712 7,006 Timber operations: Timber equipment and facilities (net of accumulated depreciation of $6,231 in 1999 and $3,800 in 1998)...... 19,496 18,800 Deferred timber development costs (net of accumulated amortization of $2,279 in 1999 and $2,841 in 1998)...... 8,609 19,031 Building (net of accumulated depreciation of $1,990 in 1999 and $1,413 in 1998)....................................... 24,559 25,136 Furniture, equipment and leasehold improvements (net of accumulated depreciation and amortization of $17,646 in 1999 and $13,002 in 1998)................................. 17,266 20,169 Other noncurrent assets..................................... 26,633 15,016 Net noncurrent assets of discontinued operations............ 38,324 64,696 -------- -------- Total noncurrent assets............................. 207,231 315,986 -------- -------- $299,832 $439,218 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Payable to funds for shares sold............................ $ 9,420 $ 14,053 Accounts payable............................................ 5,832 9,162 Accrued expenses............................................ 22,023 23,172 Distribution and service fees due to brokers and dealers.... 9,043 7,449 Brokerage liabilities....................................... 265 5,669 Accrued income taxes........................................ 6,899 19,647 Current portion of notes payable............................ 1,343 1,818 Net current liabilities of discontinued operations.......... 31,815 -- -------- -------- Total current liabilities........................... 86,640 80,970 -------- -------- Noncurrent liabilities: Notes payable, net of current portion....................... 63,892 99,035 -------- -------- Total noncurrent liabilities........................ 63,892 99,035 -------- -------- Total liabilities................................... 150,532 180,005 -------- -------- Minority Interest........................................... 62,202 104,411 -------- -------- COMMITMENTS AND CONTINGENCIES (NOTE 8) STOCKHOLDERS' EQUITY: Common stock, $0.10 par value; authorized 60,000,000 shares; issued 26,532,064 shares in 1999 and 26,134,103 shares in 1998.......................................... 2,653 2,613 Paid-in capital......................................... 47,372 30,110 Retained earnings....................................... 50,044 133,013 Treasury stock at cost, 50,885 shares in 1999 and 11,303 shares in 1998......................................... (1,804) (265) Cumulative translation adjustment....................... (3,943) (1,855) -------- -------- 94,322 163,616 Less -- Deferred cost of restricted common stock issued... (7,224) (8,814) -------- -------- Total stockholders' equity.......................... 87,098 154,802 -------- -------- $299,832 $439,218 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-3 44 THE PIONEER GROUP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK ----------------------------- CUMULATIVE SHARES PAID-IN RETAINED TREASURY TRANSLATION ISSUED AMOUNT CAPITAL EARNINGS STOCK ADJUSTMENT ---------- ------ ------- -------- -------- ----------- DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS Balance, December 31, 1996......... 25,013,763 $2,501 $11,450 $152,457 $ (16) $ -- ---------- ------ ------- -------- ------- ------- Add (Deduct): Net income....................... -- -- -- 29,166 -- -- Dividends paid ($0.40 per share)......................... -- -- -- (10,065) -- -- Shares awarded under restricted stock plans (162,207 shares)... 156,945 16 3,679 -- 103 -- Shares issued under the 1995 employee stock purchase plan (34,527 shares)................ 17,682 2 330 -- 350 -- Amortization of deferred cost of restricted common stock issued......................... -- -- -- -- -- -- Additional tax benefits from stock plans.................... -- -- 306 -- -- -- Forfeiture of shares awarded under restricted stock plans (38,690 shares)................ -- -- -- -- (808) -- Exercise of stock options awarded under the 1988 stock option plan (46,000 shares)........... 31,177 3 147 -- 306 -- Cumulative translation adjustment..................... -- -- -- -- -- (1,277) Comprehensive income (loss)...... -- -- -- -- -- -- ---------- ------ ------- -------- ------- ------- Balance, December 31, 1997......... 25,219,567 $2,522 $15,912 $171,558 $ (65) $(1,277) ---------- ------ ------- -------- ------- ------- Add (Deduct): Net loss......................... -- -- -- (33,468) -- -- Dividends paid ($0.20 per share)......................... -- -- -- (5,077) -- -- Shares awarded under restricted stock plans (301,098 shares)... 292,707 29 7,519 -- 200 -- Shares issued under the 1995 employee stock purchase plan (41,938 shares)................ 19,420 2 282 -- 529 -- Amortization of deferred cost of restricted common stock issued......................... -- -- -- -- -- -- Additional tax benefits from stock plans.................... -- -- 3,681 -- -- -- Forfeiture of shares awarded under restricted stock plans (43,161 shares)................ -- -- -- -- (1,015) -- Exercise of stock options awarded under the 1988 stock option plan (628,600 shares).......... 602,409 60 2,716 -- 86 -- Cumulative translation adjustment..................... -- -- -- -- -- (578) Comprehensive income (loss)...... -- -- -- -- -- -- ---------- ------ ------- -------- ------- ------- Balance, December 31, 1998......... 26,134,103 $2,613 $30,110 $133,013 $ (265) $(1,855) ---------- ------ ------- -------- ------- ------- Add (Deduct): Net loss......................... -- -- -- (82,969) -- -- Shares awarded under restricted stock plans (219,666 shares)... 200,312 21 3,603 -- 460 -- Shares issued under the 1995 employee stock purchase plan (44,274 shares)................ 44,274 4 618 -- -- -- Amortization of deferred cost of restricted common stock issued......................... -- -- -- -- -- -- Additional tax benefits from stock plans.................... -- -- 963 -- -- -- Forfeiture of shares awarded under restricted stock plans (114,835 shares)............... -- -- -- -- (2,684) -- Gain on sale of stock issued by a subsidiary..................... -- -- 12,282 -- -- -- Exercise of stock options awarded under the 1988 stock option plan (222,900 shares).......... 153,375 15 (204) -- 685 -- Cumulative translation adjustment..................... -- -- -- -- -- (2,088) Comprehensive income (loss)...... -- -- -- -- -- -- ---------- ------ ------- -------- ------- ------- Balance, December 31, 1999......... 26,532,064 $2,653 $47,372 $ 50,044 $(1,804) $(3,943) ========== ====== ======= ======== ======= ======= DEFERRED COST OF TOTAL COMPREHENSIVE RESTRICTED STOCKHOLDERS' INCOME STOCK EQUITY (LOSS) ---------- ------------- ------------- DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS Balance, December 31, 1996......... $(3,919) $162,473 ------- -------- Add (Deduct): Net income....................... -- 29,166 29,166 Dividends paid ($0.40 per share)......................... -- (10,065) -- Shares awarded under restricted stock plans (162,207 shares)... (3,673) 125 -- Shares issued under the 1995 employee stock purchase plan (34,527 shares)................ -- 682 -- Amortization of deferred cost of restricted common stock issued......................... 1,821 1,821 -- Additional tax benefits from stock plans.................... -- 306 -- Forfeiture of shares awarded under restricted stock plans (38,690 shares)................ 808 -- -- Exercise of stock options awarded under the 1988 stock option plan (46,000 shares)........... -- 456 -- Cumulative translation adjustment..................... -- (1,277) (1,277) -------- Comprehensive income (loss)...... -- -- $ 27,889 ------- -------- ======== Balance, December 31, 1997......... $(4,963) $183,687 ------- -------- Add (Deduct): Net loss......................... -- (33,468) (33,468) Dividends paid ($0.20 per share)......................... -- (5,077) -- Shares awarded under restricted stock plans (301,098 shares)... (7,652) 96 -- Shares issued under the 1995 employee stock purchase plan (41,938 shares)................ -- 813 -- Amortization of deferred cost of restricted common stock issued......................... 2,786 2,786 -- Additional tax benefits from stock plans.................... -- 3,681 -- Forfeiture of shares awarded under restricted stock plans (43,161 shares)................ 1,015 -- -- Exercise of stock options awarded under the 1988 stock option plan (628,600 shares).......... -- 2,862 -- Cumulative translation adjustment..................... -- (578) (578) -------- Comprehensive income (loss)...... -- -- $(34,046) ------- -------- ======== Balance, December 31, 1998......... $(8,814) $154,802 ------- -------- Add (Deduct): Net loss......................... -- (82,969) (82,969) Shares awarded under restricted stock plans (219,666 shares)... (4,052) 32 -- Shares issued under the 1995 employee stock purchase plan (44,274 shares)................ -- 622 -- Amortization of deferred cost of restricted common stock issued......................... 2,969 2,969 -- Additional tax benefits from stock plans.................... -- 963 -- Forfeiture of shares awarded under restricted stock plans (114,835 shares)............... 2,673 (11) -- Gain on sale of stock issued by a subsidiary..................... -- 12,282 -- Exercise of stock options awarded under the 1988 stock option plan (222,900 shares).......... -- 496 -- Cumulative translation adjustment..................... -- (2,088) (2,088) -------- Comprehensive income (loss)...... -- -- $(85,057) ------- -------- ======== Balance, December 31, 1999......... $(7,224) $ 87,098 ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 45 THE PIONEER GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- DOLLARS IN THOUSANDS Cash flows from operating activities: Net income (loss).......................................... $(82,969) $(33,468) $ 29,166 Less net loss from discontinued operations................. (73,682) (27,067) (3,077) Less cumulative effect of change in accounting principle... (12,112) -- -- -------- -------- -------- Net income (loss) from continuing operations............... $ 2,825 $ (6,401) $ 32,243 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization............................ 16,011 28,038 21,827 Gain on sale of B share rights........................... -- (8,132) -- Unrealized and realized gains on venture capital, marketable securities investments, and long term investments, net....................................... 1,082 (4,418) (27,460) Equity in losses of affiliated companies................. 11,291 -- -- Provision on other investments........................... -- 3,983 2,710 Restricted stock plan expense............................ 2,969 2,786 1,821 (Prepaid) deferred income taxes.......................... (2,879) (28,167) 4,081 Minority interest........................................ 2,339 (4,349) 4,653 Changes in operating assets and liabilities: Investments in marketable securities, net................ (725) 5,206 (1,632) Receivable from securities brokers and dealers for sales of mutual fund shares.................................. 4,643 (2,320) (2,742) Receivables for securities sold.......................... 895 10,377 (8,866) Receivables from Pioneer Family of Mutual Funds and other.................................................. 3,875 1,145 (8,312) Timber inventory......................................... (323) 2,312 (4,491) Other current assets..................................... 1,418 (5,252) 512 Other noncurrent assets.................................. 914 1,795 (154) Payable to funds for shares sold......................... (4,633) 2,287 2,770 Accrued expenses and accounts payable.................... (2,885) 4,640 4,406 Brokerage liabilities.................................... (5,404) (9,033) 13,232 Accrued income taxes..................................... (11,785) 18,873 5,872 -------- -------- -------- Total adjustments and changes in operating assets and liabilities.......................................... 16,803 19,771 8,227 -------- -------- -------- Net cash provided by continuing operating activities........................................... 19,628 13,370 40,470 -------- -------- -------- Net cash provided by (used in) discontinued operating activities........................................... 480 (4,330) 16,720 -------- -------- -------- Net cash provided by operating activities............ 20,108 9,040 57,190 -------- -------- -------- Cash flows from investing activities: Additions to furniture, equipment and leasehold improvements............................................. (5,468) (11,940) (8,557) Building................................................... -- (864) (2,865) Long-term venture capital investments...................... (2,777) (45,774) (26,945) Proceeds from sale of long-term venture capital investments.............................................. 1,458 22,040 6,688 Proceeds from sale of domestic venture capital operations............................................... 34,945 -- -- Deferred timber development costs.......................... -- -- (354) Purchase of timber equipment and facilities................ (3,127) (4,988) (5,206) Other investments.......................................... (379) (1,373) (5,871) Proceeds from sales of other investments................... -- -- 1,732 Cost of acquisition in excess of net assets acquired....... -- (16) (87) Deconsolidation of pension company subsidiary.............. (10,070) -- -- Purchase of long-term investments.......................... (189) (2,245) (4,026) Proceeds from sale of long-term investments................ 768 5,007 13,884 -------- -------- -------- Net cash provided by (used in) continuing investing activities........................................... 15,161 (40,153) (31,607) -------- -------- -------- Net cash provided by (used in) investing activities, discontinued operations.............................. (4,874) (10,222) (24,104) -------- -------- -------- Net cash provided by (used in) investing activities........................................... 10,287 (50,375) (55,711) -------- -------- -------- Cash flows from financing activities: Dividends paid............................................. -- (5,077) (10,065) Liquidation of venture capital partnership................. (1,972) -- -- Distributions to limited partners of venture capital subsidiary............................................... (1,288) (68) (94) Amounts raised by venture capital investment partnerships............................................. -- 34,559 21,024 Sale of stock by subsidiary................................ 555 -- -- Employee stock purchase plan............................... 622 813 682 Exercise of stock options.................................. 496 2,862 456 Restricted stock plan award................................ 32 96 125 Dealer advances............................................ (221) (20,702) (16,331) Sale of dealer advances.................................... -- 61,631 -- Revolving credit agreement borrowings, net................. (30,000) (26,000) 8,500 Borrowings of notes payable................................ -- 447 21,897 Repayments of notes payable................................ (5,618) (5,881) (3,240) Reclassification of restricted cash........................ 5,413 (881) (3,587) -------- -------- -------- Net cash provided by (used in) continuing financing activities........................................... (31,981) 41,799 19,367 -------- -------- -------- Net cash provided by (used in) financing activities, discontinued operations.............................. (5,726) (6,513) 5,415 -------- -------- -------- Net cash provided by (used in) financing activities........................................... (37,707) 35,286 24,782 Effect of foreign currency exchange rate changes on cash and cash equivalents........................................... (160) (160) (728) Net increase (decrease) in cash and cash equivalents........ (7,472) (6,209) 25,533 Cash and cash equivalents at beginning of year.............. 44,212 50,421 24,888 -------- -------- -------- Cash and cash equivalents at end of year.................... $ 36,740 $ 44,212 $ 50,421 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-5 46 THE PIONEER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 NOTE 1 -- NATURE OF OPERATIONS AND ORGANIZATION The operations of The Pioneer Group, Inc. and its subsidiaries (collectively, the "Company"), are divided among three strategic business units: (i) Pioneer Investment Management ("PIM"), (ii) Pioneer International Financial Services, and (iii) Pioneer Global Investments. PIM includes the (i) investment management and marketing of the Company's 25 U.S. registered investment companies (comprised of 37 investment portfolios) in the Pioneer Family of Mutual Funds, as well as the nine offshore mutual funds based in Ireland, (ii) distribution of shares of the Pioneer Family of Mutual Funds by Pioneer Funds Distributor, Inc. ("PFD"), and (iii) shareowner servicing for the Pioneer Family of Mutual Funds by Pioneering Services Corporation. PIM also provides separate account management services for institutional investors and through subsidiaries also distributes and services the Irish offshore mutual funds. Pioneer International Financial Services includes investment management and financial services operations in (i) Warsaw, Poland, where the Company manages, distributes and services units of four mutual funds, owns a unitholder servicing agent, and in 1998 established a private pension fund management company, (ii) Prague, Czech Republic, where the Company manages, distributes and services participation certificates in a Czech mutual fund, and (iii) Moscow, Russia, where the Company manages, distributes and services two mutual funds, and owns approximately 52% of Pioneer First Investment Fund. Pioneer International Financial Services also includes minority interests in investment management operations in India and Taiwan. Pioneer Global Investments includes the Company's diversified strategic businesses, consisting of U.S. and international venture capital operations, U.S. and international real estate operations, and timber harvesting. The Company is in the process of disposing its gold mining operations and as such is reporting those results as discontinued operations. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of the Company, its wholly owned and majority-owned subsidiaries and certain partnerships that the Company controls. The Company has consolidated the Pioneer Poland U.S. L.P. and Pioneer Poland U.K. L.P. in which the Company's ownership interest is 7.2% and 9.2%, respectively. In 1998 and 1997, the Company also consolidated Pioneer Ventures Limited Partnership II in which it owned a 14% interest. Control is defined by several factors, including, but not limited to, the fact that the Company is the general partner, the general partner has absolute and unilateral authority to make investment decisions, the limited partners may not remove the general partner and the general partner has absolute and unilateral authority to declare, or not declare, distributions of partnership income to the partners. All material intercompany balances and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates with regard to these consolidated financial statements relate to the valuation of venture capital investments and the estimated future cash flows of the Company's timber operations, as discussed herein. F-6 47 THE PIONEER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Certain reclassifications have been made to 1998 and 1997 amounts to conform with the 1999 presentation. In the second quarter of 1999, the Company reached an agreement with an unrelated third party to sell newly issued shares of its Polish pension company subsidiary representing a 30% interest for $20 million. As a result of the transaction, the Company realized a gain of approximately $12.3 million that was reflected as a credit to stockholders' equity. In addition, the Company deconsolidated the Polish pension company as control is shared with the unrelated third party and has accounted for its investment in the pension company under the equity method retroactive to January 1, 1999. Consolidated Statements of Cash Flows Cash and cash equivalents consist primarily of cash on deposit in banks and amounts invested in commercial paper, Pioneer money market mutual funds and U.S. Treasury bills with original maturities of three months or less. Restricted cash consists of cash reserved for the exclusive benefit of brokerage and mutual fund customers. Interest paid was approximately $9,218,000 in 1999, $12,110,000 in 1998 and $9,359,000 in 1997. The amounts paid in 1997 include approximately $1,353,000 of interest that was capitalized related to the development of the Company's building, Russian timber operations and the gold mining expansion operations. Income taxes paid were approximately $20,981,000, $14,816,000 and $18,719,000 in 1999, 1998 and 1997, respectively. Recognition of Revenues Investment management, shareholder services, trustee and other fees are recorded as income during the period in which services are performed. Agreements with certain of the Pioneer Family of Mutual Funds provide for fee reductions, which are based on the excess of annual expenses of each mutual fund over certain limits. Fee reductions are recorded on an accrual basis. Underwriting commissions earned from the distribution of the Pioneer Family of Mutual Fund shares and the systematic investment plans are recorded as income on the trade (execution) dates. Distribution fees are earned based on 0.75% of certain Pioneer Family of Mutual Fund net assets. In September 1998, the Company sold its rights to receive distribution fees and contingent deferred sales charges on then outstanding Class B shares. Since October 1998, the gains on sales of Class B share rights sold pursuant to the Class B shares rights program have been included in distribution fees (see Note 12). Revenues from brokerage activities were derived from net realized and unrealized gains and losses from securities trading activities. The Company's brokerage operations were located in Russia and Poland, which have been closed and sold, respectively. (See Note 13.) The Company records timber sales when title passes and the timber is shipped. Building The building represents the Meridian Commercial Tower in Russia. The Meridian Commercial Tower is an office building which is wholly owned by the Pioneer First Investment Fund. Furniture, Equipment and Leasehold Improvements Depreciation and amortization are provided for financial reporting purposes on a straight-line basis over the following estimated useful lives: furniture and equipment, 3-5 years, and leasehold improvements, over the term of the lease. In the event of retirement or other disposition of furniture and equipment, the cost of the F-7 48 THE PIONEER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) assets and the related accumulated depreciation and amortization amounts are removed from the accounts, and any resulting gains or losses are reflected in earnings. Deferred Timber Development Costs Deferred timber development costs consist of construction and engineering expenditures and infrastructure costs incurred in developing the site and the roads, capitalized interest, legal, timber rights, other pre-operating costs and organizational costs. Certain of these costs constitute start-up costs that were expensed in 1999 (see "Costs of Start-Up Activities"). These costs are amortized on a units-of-production basis which anticipates recovery principally over ten years. Timber Equipment and Facilities Timber equipment and facilities consist of a jetty, logging machinery and building and housing units. These costs are principally depreciated on a units-of-production basis which anticipates recovery over five to twenty years. Cost of Acquisitions in Excess of Net Assets Acquired Cost of acquisitions in excess of net assets acquired is amortized on a straight-line basis over five to fifteen years and, as reflected in the accompanying consolidated balance sheets, consists of the following:
DECEMBER 31, ---------------------- 1999 1998 --------- --------- (DOLLARS IN THOUSANDS) Mutual of Omaha Fund Management Company.................. $13,015 $14,482 Russian investment operations............................ 1,524 1,810 Polish brokerage operations.............................. -- 280 ------- ------- $14,539 $16,572 ======= =======
Valuation of Long-Term Venture Capital Investments The Company's long-term venture capital investments consist of the following:
DECEMBER 31, ----------------------- 1999 1998 -------- --------- (DOLLARS IN THOUSANDS) Domestic.............................................. $ -- $ 79,475 Non-U.S. ............................................. 51,093 50,085 ------- -------- $51,093 $129,560 ======= ========
The Company's non-U.S. venture capital investments are in companies that are primarily engaged in bringing new technology to market as well as more mature companies in need of capital for expansion, acquisitions, management buyouts or recapitalizations. At the time the investments are made, the Company's investments are primarily in the form of unregistered common and preferred stock, warrants and promissory notes. Non-U.S. venture capital investments are the investments held by certain consolidated partnerships. These venture capital investments are in companies that are domiciled in Poland. No market quotes are available for the non-U.S. venture capital investments. Included in the total non-U.S. venture capital investments is cash that has been restricted for the future purchase of venture capital investments of $11,233,000. F-8 49 THE PIONEER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Most securities are valued at fair value, as determined in good faith by management, when market quotes are not available. In determining fair value, investments are initially stated at cost until significant subsequent events require a change in valuation. The Company considers the financial condition and operating results of the investee, prices paid in subsequent private offerings of the same or similar securities, the amount that the Company can reasonably expect to realize upon the sale of these securities, and any other factors deemed relevant. Securities for which market quotations are available are valued at the closing price as of the valuation date with an appropriate discount, if restricted. Long-Term Investments Long-term investments consist mainly of Russian investments of the Pioneer First Investment Fund. These securities are carried at cost with adjustments made for any other-than-temporary impairment in value until such time as the breadth and scope of Russian securities markets develop to certain quantifiable levels. When the breadth and scope of the Russian securities market develops to certain quantifiable levels, the securities will be recorded at fair value with unrealized gains and losses recorded in stockholders' equity after income taxes and minority interest. The carrying value of these securities was $6.7 million at December 31, 1999 and $7.0 million at December 31, 1998. The approximate fair value of these securities was $20.6 million at December 31, 1999 and $13.4 million at December 31, 1998 (based upon available market quotations and appraisals). Valuation of Financial Instruments The Company considers the liquid nature and readily available market quotations when estimating fair value of financial instruments. As stated in the accompanying consolidated balance sheets, the carrying values of the Company's financial instruments approximate fair value, except for the long-term investments of Pioneer First Investment Fund, as discussed above. Earnings Per Share The following table details the calculation of basic and diluted earnings per share ("EPS"). Basic EPS is computed by dividing reported earnings available to stockholders by weighted average shares outstanding not including contingently issuable shares. Diluted EPS includes the effect of the contingently issuable shares and other common stock equivalents.
NET EARNINGS/ INCOME/ (LOSS) (LOSS) SHARES PER SHARE --------- ------- ---------- (DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE AMOUNTS) FOR THE YEAR ENDED 12/31/99 Basic earnings (loss) per share calculation: Continuing operations................................. $ 2,825 25,931 $ 0.11 Discontinued operations............................... $(73,682) 25,931 $(2.84) Cumulative effect of change in accounting principle... $(12,112) 25,931 $(0.47) -------- ------ ------ Total............................................ $(82,969) 25,931 $(3.20) ======== ====== ====== Options............................................... 253 Restricted stock...................................... -- ------
F-9 50 THE PIONEER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NET EARNINGS/ INCOME/ (LOSS) (LOSS) SHARES PER SHARE --------- ------- ---------- (DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Diluted earnings (loss) per share calculation: Continuing operations................................. $ 2,825 26,184 $ 0.11 Discontinued operations............................... $(73,682) 26,184 $(2.82) Cumulative effect of change in accounting principle... $(12,112) 26,184 $(0.46) -------- ------ ------ Total............................................ $(82,969) 26,184 $(3.17) ======== ====== ====== FOR THE YEAR ENDED 12/31/98 Basic earnings (loss) per share calculation: Continuing operations................................. $ (6,401) 25,148 $(0.25) Discontinued operations............................... $(27,067) 25,148 $(1.08) -------- ------ ------ Total............................................ $(33,468) 25,148 $(1.33) ======== ====== ====== Options............................................... 188 Restricted stock...................................... 14 ------ Diluted earnings (loss) per share calculation: Continuing operations................................. $ (6,401) 25,350 $(0.25) Discontinued operations............................... $(27,067) 25,350 $(1.07) -------- ------ ------ Total............................................ $(33,468) 25,350 $(1.32) ======== ====== ====== FOR THE YEAR ENDED 12/31/97 Basic earnings (loss) per share calculation: Continuing operations................................. $ 32,243 24,873 $ 1.29 Discontinued operations............................... $ (3,077) 24,873 $(0.12) -------- ------ ------ Total............................................ $ 29,166 24,873 $ 1.17 ======== ====== ====== Options............................................... 692 Restricted stock...................................... 65 ------ Diluted earnings (loss) per share calculation: Continuing operations................................. $ 32,243 25,630 $ 1.26 Discontinued operations............................... $ (3,077) 25,630 $(0.12) -------- ------ ------ Total............................................ $ 29,166 25,630 $ 1.14 ======== ====== ======
Excluded from diluted earnings per share were options to purchase 944,000, 791,000 and 520,500 shares in 1999, 1998 and 1997, respectively, because the options' exercise price was greater than the average market price of the common shares during the respective years. Comprehensive Income (Loss) The Company adopted Statement of Financial Accounting Standards (SFAS) 130, "Reporting Comprehensive Income" in the first quarter of 1998. SFAS 130 establishes standards for the reporting of comprehensive income and its components. Comprehensive income, as defined, includes all changes in equity during a period from non-owner sources. The Company's foreign currency translation adjustments, which are excluded from net income, are included in comprehensive income (loss). F-10 51 THE PIONEER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Foreign Currency Translation In accordance with SFAS 52, "Foreign Currency Translation," the functional currency of the Company's timber operations is the U.S. dollar, as the revenues, costs of capital equipment and financing costs are principally denominated in U.S. dollars. The functional currency of the Company's financial services operations is generally the currency of the country in which those operations are conducted. However, some of those operations are conducted in countries having highly inflationary economies and as a result the functional currency is currently the U.S. dollar. For those entities, the gains and losses which result from remeasuring into the U.S. dollar for reporting purposes are included in the accompanying consolidated statements of operations. The net foreign currency losses were $0.4 million in 1999, $0.7 million in 1998 and $1.7 million in 1997. For those entities for which the functional currency is the local currency, the gains and losses which result from translating into the U.S. dollar for reporting purposes are included in the accompanying consolidated balance sheets' stockholders' equity section as a cumulative translation adjustment. Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for the Long-Lived Assets to be Disposed of," the Company uses an estimate of the future undiscounted net cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. The Company periodically reviews its long-lived assets and assesses the future useful life of these assets whenever events or changes in circumstances indicate that the current useful life has diminished. Concentration of Risk The Company performs ongoing evaluations of its subsidiaries and investments and obtains political risk insurance which mitigates its exposure in foreign countries. Costs of Start-Up Activities On January 1, 1999, the Company adopted the American Institute of Certified Public Accountants' Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities." This Standard requires that entities expense costs of start-up activities as those costs are incurred. The Company previously capitalized certain pre-operating costs in connection with its natural resource operations and certain organizational costs associated with its financial services operations. In the first quarter of 1999, the Company recorded the cumulative effect of a change in accounting principle and wrote-off unamortized capitalized start-up costs, net of tax, of $12.1 million. The amount of pro forma net income in 1998 did not differ materially from the amount reported after giving effect to the change in accounting principle. Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes accounting and reporting standards requiring that every derivative instrument be recorded on the balance sheet as either an asset or a liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. In June 1999, SFAS 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133 -- An Amendment to FASB Statement No. 133," deferred the effective date of SFAS 133 to fiscal years beginning after June 15, 2000. The Company has not yet quantified the impact of adopting SFAS 133 on its financial statements and has not determined the timing of or method of its adoption of SFAS 133. F-11 52 THE PIONEER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3 -- INCOME TAXES The following is a summary of the components of income (loss) from continuing operations before provision for income taxes and minority interest for financial reporting purposes:
1999 1998 1997 -------- -------- ------- (DOLLARS IN THOUSANDS) Domestic............................................ $ 25,652 $ 37,868 $54,506 Foreign............................................. (11,232) (39,234) 11,304 -------- -------- ------- $ 14,420 $ (1,366) $65,810 ======== ======== =======
The components of the provision for federal, state and foreign income taxes on continuing operations consist of:
1999 1998 1997 ------- -------- ------- (DOLLARS IN THOUSANDS) Current: Federal............................................ $12,086 $ 28,465 $13,518 State.............................................. 110 4,828 2,220 Foreign............................................ (61) (64) 8,699 Deferred (Prepaid): Federal............................................ (2,976) (19,100) 4,536 State.............................................. 97 (4,745) (2) Foreign............................................ -- -- (769) ------- -------- ------- $ 9,256 $ 9,384 $28,202 ======= ======== =======
Income taxes, as stated as a percentage of income (loss) from continuing operations before provision for income taxes, are comprised of the following:
1999 1998 1997 ---- ------ ---- Federal statutory tax rate.................................. 35.0% (35.0)% 35.0% Increases (decreases) in tax rate resulting from: State income tax (net of effect on federal income tax).... 0.9 6.0 2.2 Foreign income taxes...................................... 25.6 900.0 4.5 Other, net................................................ 2.7 (184.0) 1.1 ---- ------ ---- Effective tax rate........................................ 64.2% 687.0% 42.8% ==== ====== ====
F-12 53 THE PIONEER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The approximate income tax effect of each type of temporary difference related to continuing operations and the change in accounting principle is as follows:
1999 1998 --------- --------- (DOLLARS IN THOUSANDS) Net operating losses of foreign subsidiaries........... $ 29,610 $ 21,807 Restricted stock....................................... 831 1,235 Reserves............................................... 781 1,530 Goodwill............................................... 557 620 Venture capital and other investments.................. 2,225 (2,111) Other temporary differences, net....................... 1,743 874 -------- -------- 35,747 23,955 Valuation allowance.................................... (30,720) (21,807) -------- -------- Net deferred tax asset................................. $ 5,027 $ 2,148 ======== ========
A valuation allowance has been established to fully reserve the tax benefits associated with certain net operating losses of foreign subsidiaries as the realizability of these tax benefits is not probable. The total income tax provision included in the accompanying consolidated statements of operations is as follows:
1999 1998 1997 -------- ------- ------- (DOLLARS IN THOUSANDS) Continuing operations....................................... $ 9,256 $ 9,384 $28,202 Discontinued operations..................................... (14,571) (7,497) (543) Change in accounting principle.............................. (261) -- -- -------- ------- ------- $ (5,576) $ 1,887 $27,659 ======== ======= =======
NOTE 4 -- STOCK PLANS The Company has a Stock Incentive Plan (the "1997 Plan") to provide incentives to certain employees who have contributed and are expected to contribute materially to the success of the Company and its subsidiaries. In 1999, an amendment to the 1997 Plan was approved to increase the number of shares of the Company's common stock that may be awarded to participants from 1,500,000 to 3,000,000. Under the 1997 Plan, the Company may grant restricted stock, stock options and other stock based awards. The 1997 Plan is administered by the Compensation Committee of the Board of Directors (the "Committee"). The 1997 Plan expires in February 2007. The Company's 1995 Restricted Stock Plan (the "1995 Plan") and 1988 Stock Option Plan (the "1988 Option Plan") were terminated upon the approval of the 1997 Plan by the stockholders of the Company on May 20, 1997. The Company's 1990 Restricted Stock Plan (the "1990 Plan") expired in January 1995. The 1997 Plan, 1995 Plan and the 1990 Plan are collectively referred to as the "Plans." F-13 54 THE PIONEER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Restricted stock is granted at a price to be determined by the Board of Directors, generally $0.10 per share. The following tables summarize restricted stock plan activity for the Plans during 1999.
UNVESTED SHARES ----------------------------------------------- 1997 PLAN 1995 PLAN 1990 PLAN TOTAL --------- --------- --------- -------- Balance at 12/31/98.............................. 317,625 130,365 42,674 490,664 Awarded........................................ 219,666 -- -- 219,666 Vested......................................... (68,969) (54,054) (29,964) (152,987) Forfeited...................................... (89,091) (22,354) (3,390) (114,835) ------- --------- ------- -------- Balance at 12/31/99.............................. 379,231 53,957 9,320 442,508 ======= ========= ======= ========
VESTED SHARES ----------------------------------------------- 1997 PLAN 1995 PLAN 1990 PLAN TOTAL --------- --------- --------- -------- Balance at 12/31/98.............................. 7,220 40,678 668,160 716,058 Vested......................................... 68,969 54,054 29,964 152,987 ------- --------- ------- -------- Balance at 12/31/99.............................. 76,189 94,732 698,124 869,045 ======= ========= ======= ========
The Company awarded 301,098 shares in 1998 and 27,875 shares in 1997 under the 1997 Plan. The Company awarded 134,332 shares in 1997 under the 1995 Plan. The participant's right to sell the awarded stock under the Plans is generally restricted as to 100% of the shares awarded during the first year following the award, 75% during the second year and 25% less each year thereafter. The Company may repurchase unvested restricted shares at $0.10 per share upon termination of employment. Awards under the Plans are compensatory and, accordingly, the difference between the award price and the market value of the shares under the Plans at the award date, is being amortized on a straight- line basis over a four-year period. Options issuable under the 1997 Plan become exercisable as determined by the Committee not to exceed ten years from the date of grant. Options granted to date vest over five years at an annual rate of 20% on each anniversary date of the date of grant. As of December 31, 1999, 1,297,080 shares of the Company's common stock remain available for grant under the 1997 Plan. In May 1995, the Company adopted the 1995 Employee Stock Purchase Plan (the "1995 Purchase Plan"), which qualifies as an "Employee Stock Purchase Plan" within the meaning of Section 423 of the Internal Revenue Code of 1986. An aggregate total of 500,000 shares of common stock have been authorized for issuance under the 1995 Purchase Plan to be implemented through one or more offerings, each approximately six months in length beginning on the first business day of each January and July. The price at which shares may be purchased during each offering will be the lower of (i) 85% of the closing price of the common stock as reported on The Nasdaq Stock Market(R) (the "closing price") on the date that the offering commences or (ii) 85% of the closing price of the common stock on the date the offering terminates. In 1999, 1998 and 1997, the Company issued 44,274, 41,938 and 34,527 shares under the 1995 Purchase Plan, respectively. F-14 55 THE PIONEER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company records stock compensation in accordance with Accounting Principles Board ("APB") Opinion 25, "Accounting for Stock Issued to Employees." Had the compensation cost for these plans been determined consistent with SFAS 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been the following pro forma amounts:
1999 1998 1997 ----------- ----------- ---------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Net (loss)/income: As reported....................................... $(82,969) $(33,468) $29,166 Pro forma......................................... $(84,540) $(34,983) $28,327 Diluted EPS: As reported....................................... $ (3.17) $ (1.32) $ 1.14 Pro forma......................................... $ (3.23) $ (1.38) $ 1.11
The weighted-average grant-date fair value of all options granted during 1999, 1998 and 1997 was approximately $4,149,000, $5,206,000 and $4,651,000, respectively. For purposes of the pro forma disclosure, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
1999 1998 1997 ------- ------- ------- Volatility.............................................. 44% 42% 36% Risk-Free interest rate................................. 4.8% 4.6% 5.8% Dividend yield.......................................... -- 1.06% 1.43% Expected life of options................................ 9 years 9 years 9 years
The fair value of the "look-back" option feature of the 1995 Purchase Plan is valued as the sum of its two separate components. The first component is 15% of the value of a share of unvested common stock, and the second component is 85% of the fair value of an option to purchase a share of common stock at the market price on the date of grant. The following assumptions were used for "look-back" option grants made under the 1995 Purchase Plan:
1999 1998 1997 -------- -------- -------- Volatility........................................ 41% 39% 28% Risk-Free interest rate........................... 4.8% 5.5% 5.7% Dividend yield.................................... -- 1.06% 1.43% Expected life of options.......................... 6 months 6 months 6 months
Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. F-15 56 THE PIONEER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes the Option Plans activity for the three years ended December 31, 1999.
WEIGHTED AVERAGE NUMBER OF EXERCISE PRICE SHARES PER SHARE --------- ---------------- Outstanding at December 31, 1996.................. 2,165,500 $11.51 Granted........................................... 345,000 $29.52 Exercised......................................... (46,000) $ 9.89 Terminated........................................ (26,500) $19.24 --------- ------ Outstanding at December 31, 1997.................. 2,438,000 $13.60 Granted........................................... 667,500 $15.46 Exercised......................................... (628,600) $ 5.37 Terminated........................................ (12,500) $27.50 --------- ------ Outstanding at December 31, 1998.................. 2,464,400 $16.53 Granted........................................... 457,500 $15.15 Exercised......................................... (222,900) $ 6.12 Terminated........................................ (286,500) $19.06 --------- ------ Outstanding at December 31, 1999.................. 2,412,500 $16.93 Exercisable at year end........................... 1,255,300 $15.29
The following table summarizes information about options outstanding at December 31, 1999:
WEIGHTED WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER CONTRACTUAL AVERAGE EXERCISE PRICE OUTSTANDING LIFE IN YEARS EXERCISE PRICE - -------------- ----------- ------------- -------------- $4.19-$7.07 507,000 2.33 $ 5.08 $12.00-$19.00 1,071,500 8.80 $14.91 $21.25-$29.875 834,000 6.98 $26.73 --------- 2,412,500 =========
NOTE 5 -- NET CAPITAL As a broker-dealer, PFD is subject to the Securities and Exchange Commission's ("SEC") regulations and operating guidelines which, among other things, require PFD to maintain a specified amount of net capital. Net capital may fluctuate on a daily basis. Effective with the June 30, 1998 net capital computation, the Company changed its method of net capital computation from the Aggregate Indebtedness method to the Alternative Standard. PFD's net capital, as computed under Rule 15c3-1, was $1,488,455 at December 31, 1999, which exceeded required net capital of $250,000 by $1,238,455. NOTE 6 -- BENEFIT PLANS The Company and its subsidiaries have two defined contribution plans for eligible employees: a retirement benefit plan and a savings and investment plan ("the Benefit Plans") qualified under Section 401 of the Internal Revenue Code. The Company makes contributions to a trustee, on behalf of eligible employees, to fund both Benefit Plans. The Company's expenses under the Benefit Plans were approximately $3,076,000 in 1999, $3,462,000 in 1998 and $2,666,000 in 1997. Both of the Company's qualified Benefit Plans described above cover all full-time employees who have met certain age and length-of-service requirements. Regarding the retirement benefit plan, the Company F-16 57 THE PIONEER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) contributes an amount which would purchase a certain targeted monthly pension benefit at the participant's normal retirement date. In connection with the savings and investment plan, participants can voluntarily contribute up to 12% of their compensation to the plan, and the Company will match this contribution up to 2%. NOTE 7 -- RELATED PARTY TRANSACTIONS Certain officers and/or directors of the Company and its subsidiaries are officers and/or trustees of the Pioneer Family of Mutual Funds and the Company's international mutual funds. Investment management fees earned from the mutual funds were approximately $146,509,000 in 1999, $137,753,000 in 1998 and $118,851,000 in 1997. Underwriting commissions, distribution fees and other revenue earned from the sales of mutual fund shares were approximately $16,606,000 in 1999, $29,097,000 in 1998 and $25,261,000 in 1997. Shareholder services fees earned from the mutual funds were approximately $43,740,000 in 1999, $31,610,000 in 1998 and $28,002,000 in 1997. Within the Pioneer Family of Mutual Funds, total revenues from Pioneer II were approximately $38,963,000 in 1999, $47,535,000 in 1998 and $50,933,000 in 1997. Total revenues from Pioneer Fund were $57,201,000 in 1999, $42,323,000 in 1998 and $28,918,000 in 1997. Certain partners of Hale and Dorr LLP, the Company's legal counsel, are officers and/or directors of the Company and its subsidiaries. Amounts paid to Hale and Dorr LLP consist of legal fees of approximately $514,000 in 1999, $663,000 in 1998 and $635,000 in 1997. Hale and Dorr LLP is a partner in the law firm Brobeck Hale and Dorr International. The Company paid legal fees in the amount of approximately $17,000 in 1999, $5,000 in 1998 and $76,000 in 1997 to Brobeck Hale and Dorr International. NOTE 8 -- COMMITMENTS At December 31, 1999, the Company had $34 million of debt attributable to its discontinued gold mining operations. Included in this amount is $9 million from Overseas Private Investment Corporation ("OPIC") for which the Company is subject to recourse. The Company has committed to subscribe up to $5.7 million for Class B shares of the Pioneer Poland Real Estate Fund, of which $0.3 million has been contributed as of December 31, 1999. U.S. rental expense amounted to approximately $6,004,000 in 1999, $4,577,000 in 1998 and $3,766,000 in 1997, respectively. Future minimum payments under the leases amount to approximately $5,563,000 in 2000, $5,445,000 in 2001, $1,800,000 in 2002, $633,000 in 2003, $633,000 in 2004 and $1,424,000 thereafter. These future minimum rental payments include estimated annual operating and tax expenses. In 2000, these operating and tax expenses will approximate $2,724,000. Rental expense for the Polish Mutual Fund operations amounted to approximately $1,106,000, $1,100,000 and $956,000 in 1999, 1998 and 1997, respectively. The lease is open-ended and can be terminated by either the Company or the lessor upon 90 days notice. The Company is contingently liable to the ICI Mutual Insurance Company for unanticipated expenses or losses in connection with its mutual fund operations in an amount not to exceed $500,000. Two thirds of this amount is secured by an irrevocable standby letter of credit with a bank. F-17 58 THE PIONEER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 9 -- NOTES PAYABLE Notes payable of the Company consist of the following:
DECEMBER 31, ----------------------- 1999 1998 --------- ---------- (DOLLARS IN THOUSANDS) Revolving Credit Agreement.............................. $40,000 $ 70,000 Senior note payable to a commercial lender, principal payable on August 15, 2004, interest payable at 9.45%................................................. 20,000 20,000 Small Business Administration ("SBA") financing, notes payable to a bank..................................... -- 3,750 Note payable to a bank, interest and principal payable monthly at the one-month Warsaw Bank rate plus 1.75% through August 2002................................... 275 447 Note payable to a bank, interest payable quarterly at the three month LIBOR rate plus 6%, principal due in eight quarterly installments through January, 1999, secured by lease rental payments and proceeds from insurance policies.................................... -- 456 Project financing, guaranteed by OPIC, payable in semiannual installments of $620,000 through December 15, 2003, interest payable at 9.95%................... 4,960 6,200 ------- -------- 65,235 100,853 Less: Current portion................................... (1,343) (1,818) ------- -------- $63,892 $ 99,035 ======= ========
Maturities of notes payable at December 31, 1999, for each of the next five years and thereafter are as follows (dollars in thousands): 2000....................................................... $ 1,343 2001....................................................... 41,343 2002....................................................... 1,309 2003....................................................... 1,240 2004....................................................... 20,000 Thereafter................................................. -- ------- $65,235 =======
The Company entered into an agreement in 1996 with a syndicate of commercial banks for a senior credit facility (the "Credit Facility"). The Credit Facility was amended in 1999. The amendments reduced the maximum amount of revolving credit and increased the pricing. The following information reflects the amended terms. The Credit Facility provides that the Company may borrow up to $55 million for general corporate purposes (the "Corporate Revolver"). The Corporate Revolver is payable in full in March 2001. Advances under the Corporate Revolver bear interest, at the Company's option, at (a) the higher of the bank's base lending rate plus 0.25% or the federal funds rate plus 0.50% or (b) LIBOR plus the applicable margin of 2.75%. The Credit Facility provides that the Company must pay additional interest at the rate of 0.375% per annum of the unused portion of the facility and an annual arrangement fee of $35,000. At December 31, 1999, the Company had borrowed $40 million under the Corporate Revolver. The Credit Facility, as amended, contains restrictions that limit, among other things, encumbrances on the assets of the Company's domestic mutual fund subsidiaries, certain mergers and sales of assets and cash expenditures on foreign operations. Additionally, the Credit Facility requires that the Company meet certain F-18 59 THE PIONEER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) financial covenants, including covenants that require the Company to maintain certain minimum ratios with respect to debt to cash flow and interest payments to cash flow and a minimum tangible net worth, all as defined in the Credit Facility. As of December 31, 1999, the Company was in compliance with all applicable covenants, as amended. For the years ended December 31, 1999, 1998 and 1997, the weighted average interest rate on the borrowings under the Credit Facility and lines of credit outstanding was 9.2%, 7.3% and 7.2%, respectively. In the second quarter of 1999, the Company terminated $40 million of overhedged swaps and recognized $426,000 of income on the transaction. As of December 31, 1999, the Company had two five-year interest rate swap agreements with a member of the Company's banking syndicate which has effectively fixed the interest rate on notional amounts totaling $60 million. Under these agreements, the Company will pay the bank a weighted average fixed rate of 6.9% on the notional principal. The bank will pay the Company interest on the notional principal at the current variable base rate stated under the swap agreements. The Company has incurred approximately $1,127,000, $1,220,000 and $976,000 of interest expense on its swap agreements during 1999, 1998 and 1997, respectively. At December 31, 1999, the Company had $20 million of overhedged swaps that the Company is marking to market in accordance with generally accepted accounting principles. At December 31, 1999, the fair value of the swaps was an obligation of ($359,000), compared to a book value of ($95,000). If the Company were to terminate these agreements, it would be required to pay an amount approximating fair value. In 1997, the Company entered into an agreement (the "Note Agreement") with a commercial lender pursuant to which the Company issued to the lender Senior Notes in the aggregate principal amount of $20 million. The Senior Notes, which bear interest at the rate of 9.45% per annum, have a maturity of seven years. Certain covenants of the Senior Notes were also amended in November 1999. The amended restrictions and financial covenants under the Note Agreement are substantially similar to the amended restrictions and financial covenants under the Credit Facility. F-19 60 THE PIONEER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 10 -- MINORITY INTEREST The Company's minority interest liability includes the interests of the other equity holders of the Company's consolidated entities. The liability for each entity is recorded based upon the net book value of that entity at the balance sheet date, except for those instances in which agreements could result in the Company redeeming those interests at amounts greater than their share of the net book value. In those instances, adjustments are made to the liability to reflect the minority equity holders' economic interests under those agreements. As of December 31, 1999 and 1998, the Company's minority interest liability consisted of the following:
1999 1998 --------- ---------- (DOLLARS IN THOUSANDS) Russian investment operations........................... $15,716 $ 15,433 Polish brokerage operations............................. -- 4 Poland Fund -- venture capital.......................... 46,486 45,649 Pioneer Ventures Limited Partnerships -- venture capital............................................... -- 43,325 ------- -------- Totals.................................................. $62,202 $104,411 ======= ========
NOTE 11 -- DISCONTINUED OPERATIONS In the second quarter of 1999, the Company reflected the gold mining segment as a discontinued operation. The gold mining segment consists of Pioneer Goldfields Ltd. ("PGL") and its 90%-owned Ghanaian operating subsidiary, Teberebie Goldfields Ltd. ("TGL"), and Closed Joint-Stock Company "Tas-Yurjah Mining Company," the Company's majority owned (95%) Russian subsidiary. The Company engaged the services of an investment banking firm to sell PGL, including its African exploration rights and its interest in TGL. The Company continues to actively negotiate a possible sale, although it can provide no assurance that a sale will occur. Regardless if a sale is consummated or not, it is proceeding with an orderly closure of the mine. All mining operations ceased at the end of 1999, and all processing activities will be completed by the end of the first half of 2000. The Company also reflected its powdered metals and Russian banking operations as discontinued operations in the second quarter of 1999 and the third quarter of 1998, respectively. Losses from the Company's discontinued operations for 1999 of $73.7 million include $53.6 million from the estimated loss on disposition of the gold mining segment, principally from the impairment of long-lived assets. Losses of discontinued gold mining and powdered metals segments for the years ending December 31, 1999, 1998 and 1997, respectively, as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1999 1998 1997 -------- -------- ------- (DOLLARS IN THOUSANDS) Losses from operations of discontinued gold mining segment, net of taxes of ($371), ($7,186) and ($426)............................................ $(18,705) $(19,788) $(2,344) Estimated loss on disposal of gold mining segment, net of taxes of ($14,200)......................... (53,580) -- -- Loss from operations of discontinued powdered metals business, net of taxes of ($85), ($427) and ($112)............................................ (498) (830) (186) Loss on disposal of powdered metals business, net of taxes of ($154)................................... (899) -- -- -------- -------- ------- Total loss from discontinued operations............. $(73,682) $(20,618) $(2,530) ======== ======== =======
F-20 61 THE PIONEER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Operating results of the discontinued gold mining operations for the years ended December 31, 1999, 1998 and 1997 are as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1999 1998 1997 -------- -------- ------- (DOLLARS IN THOUSANDS) Revenues from gold mining activities................ $ 76,669 $ 77,329 $89,487 -------- -------- ------- Loss before income tax benefit and minority interest.......................................... (88,882) (29,066) (2,326) -------- -------- ------- Income tax benefit.................................. 14,571 7,186 426 Minority interest................................... 2,026 2,092 (444) -------- -------- ------- Net loss from discontinued operations............... $(72,285) $(19,788) $(2,344) ======== ======== =======
Results of the discontinued gold mining operations include an allocation of directly attributable corporate interest expense of $995,000, $676,000 and $210,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Interest expense was allocated based upon the intercompany financing provided to the gold mining operations. Through September 30, 1998, the Company purchased put options as "insurance" against significant declines in the market price of gold. During 1998 and 1997, put option proceeds of approximately $3.2 million and $4 million, respectively, were received. In the third quarter of 1998, the Company decided to liquidate its Russian banking operations. Accordingly, the operating results for the bank have been segregated from the results from continuing operations and reported separately on the consolidated statements of operations for all periods presented. The 1998 loss included a provision of approximately $3,600,000 for costs and certain losses associated with liquidating the bank. In December 1998, the Company sold its stock in the Bank to an unrelated third party. A liability of $0.4 million was recorded at December 31, 1998 related to certain costs associated with the liquidation of the bank. The following is a summary of the results of discontinued operations for the years ended December 31, 1998 and 1997, respectively.
YEAR ENDED DECEMBER 31, ------------------------ 1998 1997 --------- --------- (DOLLARS IN THOUSANDS) Revenues from banking activities....................... $ 2,150 $12,324 ------- ------- Loss before income taxes and minority interest......... (9,589) (1,376) Income tax benefit..................................... 311 117 ------- ------- Loss from discontinued operations before minority interest............................................. (9,278) (1,259) Minority interest...................................... (2,829) (712) ------- ------- Net loss from discontinued operations.................. $(6,449) $ (547) ======= =======
NOTE 12 -- DEALER ADVANCES Certain of the Pioneer Family of Mutual Funds maintain a multi-class share structure whereby the participating funds offer both the traditional front-end load shares (Class A shares) and back-end load shares (Class B and Class C shares). Back-end load shares do not require the investor to pay any sales charge unless there is a redemption before the expiration of the minimum holding period, which ranges from three to six years in the case of Class B shares and is one year in the case of Class C shares. However, the Company pays upfront sales commissions (dealer advances) to broker-dealers ranging from 2% to 4% of the sales transaction amount on Class B shares and 1% on Class C shares. The participating Funds pay the Company distribution F-21 62 THE PIONEER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) fees of 0.75% and service fees of 0.25%, per annum of their net assets invested in Class B and Class C shares, subject to annual renewal by the participating Fund's Board of Trustees. In addition, the Company is paid a contingent deferred sales charge (CDSC) on Class B and C shares redeemed within the minimum holding period. The CDSC is paid based on declining rates ranging from 2% to 4% on the purchases of Class B shares and 1% for Class C shares. In 1998 and 1997, the Company paid Class B share dealer advances in the amount of $20.8 million and $16.3 million, respectively. In 1998, the Company entered into an agreement to sell to a third party its rights to receive future distribution fees and deferred sales charges from the then outstanding Class B shares assets of the Pioneer Family of Mutual Funds. The Class B share rights were sold for $61.7 million resulting in a pre-tax gain on sale of $8.1 million and an after-tax gain of $5.3 million, as reported in the accompanying consolidated statements of operations. In addition, the agreement (Class B share rights program) also provides for the sale, at a premium, of additional rights arising from future sales of Class B shares on a monthly basis through September 30, 2001. The Company capitalizes and amortizes Class C share dealer advances for financial statement purposes over a twelve month period. The Company deducts the dealer advances in full for tax purposes in the year such advances are paid. Distribution fees received by the Company from participating Funds are recorded in income as earned. CDSC received by the Company from redeeming shareholders reduce unamortized dealer advances directly. NOTE 13 -- DIVESTITURES In the first quarter of 1999, the Company sold its U.S. venture capital business to a third party for $34.9 million. The sale included certain venture capital investments owned by a wholly owned subsidiary and a majority owned partnership, as well as the Company's interest in a consolidated partnership which served as an investment vehicle for a number of institutional investors. In connection with the sale, the Company incurred a net loss of $3.4 million, which included certain costs associated with the transaction. The net loss is included in unrealized and realized (gains) losses on venture capital and marketable securities, net, in the accompanying consolidated statements of operations. In the fourth quarter of 1999, the Company sold its interest in the Polish brokerage business to an unrelated third party for $1.8 million. As a result of the transaction, the Company recognized a gain of $1.2 million. The gain is included in management, distribution, shareholder service and administrative expenses in the accompanying consolidated statements of operations. NOTE 14 -- FINANCIAL INFORMATION BY BUSINESS SEGMENT The Company presents its segment information for continuing operations using the management approach. The management approach is based on the way that management organizes the segments within a Company for making operating decisions and assessing performance. The Company's operating segments are organized around services and products provided, as well as geographic regions. The intersegment transactions are for management services and the secondment of employees. These transactions are generally priced on a cost or cost plus basis. F-22 63 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 14 -- FINANCIAL INFORMATION BY BUSINESS SEGMENT -- (CONTINUED) The following details selected financial information by business segment and geographic region (dollars in thousands):
PIONEER INTERNATIONAL FINANCIAL SERVICES ------------------------------------------------------------ PIONEER SUBTOTAL-PIONEER INVESTMENT CZECH INTERNATIONAL MANAGEMENT RUSSIA POLAND REPUBLIC ASIA FINANCIAL SERVICES ---------- -------- -------- -------- ------ ------------------ YEAR ENDED DECEMBER 31, 1999: Gross revenues and sales................. $ 208,897 $ 11,448 $ 16,658 $ 2,037 $ -- $ 30,143 ========= ======== ======== ======= ====== ======== Intersegment eliminations................ $ (4,988) $ (731) $ (359) $ -- $ -- $ (1,090) ========= ======== ======== ======= ====== ======== Net revenues and sales................... $ 203,909 $ 10,717 $ 16,299 $ 2,037 $ -- $ 29,053 ========= ======== ======== ======= ====== ======== Income (loss) before income taxes, minority interest and cumulative effect of accounting change..................... $ 53,965 $ (2,074) $(12,653) $ (630) $ (425) $(15,782) ========= ======== ======== ======= ====== ======== Income taxes............................. $ 18,594 $ (804) $ (902) $ (236) $ (149) $ (2,091) ========= ======== ======== ======= ====== ======== Minority interest........................ $ -- $ 282 $ (130) $ -- $ -- $ 152 ========= ======== ======== ======= ====== ======== Net income (loss) before cumulative effect of accounting change.............. $ 35,371 $ (1,552) $(11,621) $ (394) $ (276) $(13,843) ========= ======== ======== ======= ====== ======== Cumulative effect of change in accounting principle................................ $ (205) $ (521) $ -- $ (14) $ -- $ (535) ========= ======== ======== ======= ====== ======== Net income (loss)........................ $ 35,166 $ (2,073) $(11,621) $ (408) $ (276) $(14,378) ========= ======== ======== ======= ====== ======== Depreciation and amortization............ $ 13,472 $ 1,721 $ 1,233 $ 86 $ -- $ 3,040 ========= ======== ======== ======= ====== ======== Interest expense......................... $ -- $ 10 $ 60 $ 1 $ -- $ 71 ========= ======== ======== ======= ====== ======== Capital expenditures..................... $ 4,977 $ 595 $ -- $ 16 $ -- $ 611 ========= ======== ======== ======= ====== ======== Gross identifiable assets at December 31, 1999..................................... $ 231,325 $ 46,616 $ 5,825 $ 1,099 $ -- $ 53,540 ========= ======== ======== ======= ====== ======== Intersegment eliminations................ $(125,839) $ (97) $ -- $ (5) $ -- $ (102) ========= ======== ======== ======= ====== ======== Net identifiable assets at December 31, 1999..................................... $ 105,486 $ 46,519 $ 5,825 $ 1,094 $ -- $ 53,438 ========= ======== ======== ======= ====== ======== YEAR ENDED DECEMBER 31, 1998: Gross revenues and sales................. $ 217,544 $ 10,289 $ 13,685 $ 1,641 $ -- $ 25,615 ========= ======== ======== ======= ====== ======== Intersegment eliminations................ $ (9,521) $ -- $ -- $ -- $ -- $ -- ========= ======== ======== ======= ====== ======== Net revenues and sales................... $ 208,023 $ 10,289 $ 13,685 $ 1,641 $ -- $ 25,615 ========= ======== ======== ======= ====== ======== Income (loss) before income taxes and minority interest........................ $ 57,172 $(23,857) $ (2,660) $ (937) $ (859) $(28,313) ========= ======== ======== ======= ====== ======== Income taxes............................. $ 21,191 $ (2,893) $ 744 $ (174) $ (344) $ (2,667) ========= ======== ======== ======= ====== ======== Minority interest........................ $ -- $ (7,961) $ (13) $ -- $ -- $ (7,974) ========= ======== ======== ======= ====== ======== Net income (loss)........................ $ 35,981 $(13,003) $ (3,391) $ (763) $ (515) $(17,672) ========= ======== ======== ======= ====== ======== Depreciation and amortization............ $ 21,234 $ 1,407 $ 1,777 $ 132 $ -- $ 3,316 ========= ======== ======== ======= ====== ======== Interest expense......................... $ 3,308 $ 328 $ 59 $ -- $ -- $ 387 ========= ======== ======== ======= ====== ======== Capital expenditures..................... $ 7,597 $ 3,147 $ 1,737 $ 132 $ -- $ 5,016 ========= ======== ======== ======= ====== ======== Gross identifiable assets at December 31, 1998..................................... $ 209,754 $ 49,855 $ 23,198 $ 1,148 $ -- $ 74,201 ========= ======== ======== ======= ====== ======== PIONEER GLOBAL INVESTMENTS -------------------------------------------------------------------------- CENT. & EAST. EUROPE SUBTOTAL-PIONEER REAL ESTATE U.S. VENTURE VENTURE RUSSIAN GLOBAL SERVICES CAPITAL CAPITAL TIMBER INVESTMENTS OTHER ----------- ------------ --------------- -------- ---------------- -------- YEAR ENDED DECEMBER 31, 1999: Gross revenues and sales................. $ 1,737 $ 109 $ 1,235 $ 14,383 $ 17,464 $ 9,156 ======= ======= ======== ======== ======== ======== Intersegment eliminations................ $ (243) $ -- $ (279) $ -- $ (522) $ (9,156) ======= ======= ======== ======== ======== ======== Net revenues and sales................... $ 1,494 $ 109 $ 956 $ 14,383 $ 16,942 $ -- ======= ======= ======== ======== ======== ======== Income (loss) before income taxes, minority interest and cumulative effect of accounting change..................... $(4,746) $(4,151) $ 515 $ (7,992) $(16,374) $ (7,389) ======= ======= ======== ======== ======== ======== Income taxes............................. $(1,268) $(1,882) $ (69) $ (1,336) $ (4,555) $ (2,692) ======= ======= ======== ======== ======== ======== Minority interest........................ $ -- $ 1,349 $ 838 $ -- $ 2,187 $ -- ======= ======= ======== ======== ======== ======== Net income (loss) before cumulative effect of accounting change.............. $(3,478) $(3,618) $ (254) $ (6,656) $(14,006) $ (4,697) ======= ======= ======== ======== ======== ======== Cumulative effect of change in accounting principle................................ $ (115) $ (182) $ (382) $(10,693) $(11,372) $ -- ======= ======= ======== ======== ======== ======== Net income (loss)........................ $(3,593) $(3,800) $ (636) $(17,349) $(25,378) $ (4,697) ======= ======= ======== ======== ======== ======== Depreciation and amortization............ $ 126 $ (128) $ 12 $ 2,327 $ 2,337 $ 131 ======= ======= ======== ======== ======== ======== Interest expense......................... $ 7 $ 234 $ -- $ 586 $ 827 $ 6,115 ======= ======= ======== ======== ======== ======== Capital expenditures..................... $ (112) $ -- $ 4 $ 3,127 $ 3,019 $ (12) ======= ======= ======== ======== ======== ======== Gross identifiable assets at December 31, 1999..................................... $ 1,571 $ -- $ 52,176 $ 41,323 $ 95,070 $ 13,161 ======= ======= ======== ======== ======== ======== Intersegment eliminations................ $ -- $ -- $ (279) $ -- $ (279) $ (5,368) ======= ======= ======== ======== ======== ======== Net identifiable assets at December 31, 1999..................................... $ 1,571 $ -- $ 51,897 $ 41,323 $ 94,791 $ 7,793 ======= ======= ======== ======== ======== ======== YEAR ENDED DECEMBER 31, 1998: Gross revenues and sales................. $ 1,208 $ 1,666 $ 4,668 $ 10,451 $ 17,993 $ 12,747 ======= ======= ======== ======== ======== ======== Intersegment eliminations................ $ -- $ -- $ (4,086) $ -- $ (4,086) $(12,747) ======= ======= ======== ======== ======== ======== Net revenues and sales................... $ 1,208 $ 1,666 $ 582 $ 10,451 $ 13,907 $ -- ======= ======= ======== ======== ======== ======== Income (loss) before income taxes and minority interest........................ $(3,939) $15,443 $(11,207) $(23,250) $(22,953) $ (7,272) ======= ======= ======== ======== ======== ======== Income taxes............................. $(1,074) $ 2,347 $ (3,074) $ (4,548) $ (6,349) $ (2,791) ======= ======= ======== ======== ======== ======== Minority interest........................ $ -- $ 9,800 $ (6,175) $ -- $ 3,625 $ -- ======= ======= ======== ======== ======== ======== Net income (loss)........................ $(2,865) $ 3,296 $ (1,958) $(18,702) $(20,229) $ (4,481) ======= ======= ======== ======== ======== ======== Depreciation and amortization............ $ 108 $ 183 $ 371 $ 5,481 $ 6,143 $ 133 ======= ======= ======== ======== ======== ======== Interest expense......................... $ 24 $ 333 $ -- $ 4,211 $ 4,568 $ 3,634 ======= ======= ======== ======== ======== ======== Capital expenditures..................... $ -- $ 21 $ -- $ 4,988 $ 5,009 $ -- ======= ======= ======== ======== ======== ======== Gross identifiable assets at December 31, 1998..................................... $ 6,311 $86,602 $ 49,323 $ 52,921 $195,157 $ 32,669 ======= ======= ======== ======== ======== ======== TOTAL --------- YEAR ENDED DECEMBER 31, 1999: Gross revenues and sales................. $ 265,660 ========= Intersegment eliminations................ $ (15,756) ========= Net revenues and sales................... $ 249,904 ========= Income (loss) before income taxes, minority interest and cumulative effect of accounting change..................... $ 14,420 ========= Income taxes............................. $ 9,256 ========= Minority interest........................ $ 2,339 ========= Net income (loss) before cumulative effect of accounting change.............. $ 2,825 ========= Cumulative effect of change in accounting principle................................ $ (12,112) ========= Net income (loss)........................ $ (9,287) ========= Depreciation and amortization............ $ 18,980 ========= Interest expense......................... $ 7,013 ========= Capital expenditures..................... $ 8,595 ========= Gross identifiable assets at December 31, 1999..................................... $ 393,096 ========= Intersegment eliminations................ $(131,588) ========= Net identifiable assets at December 31, 1999..................................... $ 261,508 ========= YEAR ENDED DECEMBER 31, 1998: Gross revenues and sales................. $ 273,899 ========= Intersegment eliminations................ $ (26,354) ========= Net revenues and sales................... $ 247,545 ========= Income (loss) before income taxes and minority interest........................ $ (1,366) ========= Income taxes............................. $ 9,384 ========= Minority interest........................ $ (4,349) ========= Net income (loss)........................ $ (6,401) ========= Depreciation and amortization............ $ 30,826 ========= Interest expense......................... $ 11,897 ========= Capital expenditures..................... $ 17,622 ========= Gross identifiable assets at December 31, 1998..................................... $ 511,781 =========
F-23 64 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PIONEER INTERNATIONAL FINANCIAL SERVICES ------------------------------------------------------------ PIONEER SUBTOTAL-PIONEER INVESTMENT CZECH INTERNATIONAL MANAGEMENT RUSSIA POLAND REPUBLIC ASIA FINANCIAL SERVICES ---------- -------- -------- -------- ------ ------------------ Intersegment eliminations................ $(116,971) $ (143) $ -- $ (86) $ -- $ (229) ========= ======== ======== ======= ====== ======== Net identifiable assets at December 31, 1998..................................... $ 92,783 $ 49,712 $ 23,198 $ 1,062 $ -- $ 73,972 ========= ======== ======== ======= ====== ======== YEAR ENDED DECEMBER 31, 1997: Gross revenues and sales................. $ 176,900 $ 42,384 $ 14,542 $ 1,046 $ -- $ 57,972 ========= ======== ======== ======= ====== ======== Intersegment eliminations................ $ (8,427) $ (188) $ -- $ -- $ -- $ (188) ========= ======== ======== ======= ====== ======== Net revenues and sales................... $ 168,473 $ 42,196 $ 14,542 $ 1,046 $ -- $ 57,784 ========= ======== ======== ======= ====== ======== Income (loss) before income taxes and minority interest........................ $ 51,654 $ 14,187 $ 2,409 $(1,406) $ -- $ 15,190 ========= ======== ======== ======= ====== ======== Income taxes............................. $ 20,086 $ 5,528 $ 1,114 $ (162) $ -- $ 6,480 ========= ======== ======== ======= ====== ======== Minority interest........................ $ -- $ 2,798 $ (52) $ -- $ -- $ 2,746 ========= ======== ======== ======= ====== ======== Net income (loss)........................ $ 31,568 $ 5,861 $ 1,347 $(1,244) $ -- $ 5,964 ========= ======== ======== ======= ====== ======== Depreciation and amortization............ $ 17,509 $ 1,522 $ 625 $ 280 $ -- $ 2,427 ========= ======== ======== ======= ====== ======== Interest expense......................... $ 2,885 $ 226 $ 6 $ -- $ -- $ 232 ========= ======== ======== ======= ====== ======== Capital expenditures..................... $ 7,405 $ 3,561 $ 322 $ -- $ -- $ 3,883 ========= ======== ======== ======= ====== ======== Gross identifiable assets at December 31, 1997..................................... $ 263,073 $ 91,809 $ 16,308 $ 237 $ -- $108,354 ========= ======== ======== ======= ====== ======== Intersegment eliminations................ $(130,575) $ (3,880) $ -- $ -- $ -- $ (3,880) ========= ======== ======== ======= ====== ======== Net identifiable assets at December 31, 1997..................................... $ 132,498 $ 87,929 $ 16,308 $ 237 $ -- $104,474 ========= ======== ======== ======= ====== ======== PIONEER GLOBAL INVESTMENTS -------------------------------------------------------------------------- CENT. & EAST. EUROPE SUBTOTAL-PIONEER REAL ESTATE U.S. VENTURE VENTURE RUSSIAN GLOBAL SERVICES CAPITAL CAPITAL TIMBER INVESTMENTS OTHER ----------- ------------ --------------- -------- ---------------- -------- Intersegment eliminations................ $ (953) $ (7) $ -- $ -- $ (960) $(24,332) ======= ======= ======== ======== ======== ======== Net identifiable assets at December 31, 1998..................................... $ 5,358 $86,595 $ 49,323 $ 52,921 $194,197 $ 8,337 ======= ======= ======== ======== ======== ======== YEAR ENDED DECEMBER 31, 1997: Gross revenues and sales................. $ 543 $ 1,828 $ 603 $ 11,879 $ 14,853 $ 9,667 ======= ======= ======== ======== ======== ======== Intersegment eliminations................ $ -- $ -- $ (81) $ -- $ (81) $ (9,667) ======= ======= ======== ======== ======== ======== Net revenues and sales................... $ 543 $ 1,828 $ 522 $ 11,879 $ 14,772 $ -- ======= ======= ======== ======== ======== ======== Income (loss) before income taxes and minority interest........................ $(2,939) $14,678 $ (2,454) $ (6,996) $ 2,289 $ (3,323) ======= ======= ======== ======== ======== ======== Income taxes............................. $(1,035) $ 4,348 $ 297 $ (270) $ 3,340 $ (1,704) ======= ======= ======== ======== ======== ======== Minority interest........................ $ -- $ 4,005 $ (1,386) $ -- $ 2,619 $ -- ======= ======= ======== ======== ======== ======== Net income (loss)........................ $(1,904) $ 6,325 $ (1,365) $ (6,726) $ (3,670) $ (1,619) ======= ======= ======== ======== ======== ======== Depreciation and amortization............ $ 55 $ 176 $ 214 $ 2,871 $ 3,316 $ 399 ======= ======= ======== ======== ======== ======== Interest expense......................... $ -- $ 402 $ -- $ 3,045 $ 3,447 $ 2,065 ======= ======= ======== ======== ======== ======== Capital expenditures..................... $ 344 $ 38 $ 34 $ 5,206 $ 5,622 $ 177 ======= ======= ======== ======== ======== ======== Gross identifiable assets at December 31, 1997..................................... $ 7,173 $77,101 $ 28,767 $ 50,998 $164,039 $ 24,199 ======= ======= ======== ======== ======== ======== Intersegment eliminations................ $(1,847) $ (7) $ -- $ -- $ (1,854) $(19,302) ======= ======= ======== ======== ======== ======== Net identifiable assets at December 31, 1997..................................... $ 5,326 $77,094 $ 28,767 $ 50,998 $162,185 $ 4,897 ======= ======= ======== ======== ======== ======== TOTAL --------- Intersegment eliminations................ $(142,492) ========= Net identifiable assets at December 31, 1998..................................... $ 369,289 ========= YEAR ENDED DECEMBER 31, 1997: Gross revenues and sales................. $ 259,392 ========= Intersegment eliminations................ $ (18,363) ========= Net revenues and sales................... $ 241,029 ========= Income (loss) before income taxes and minority interest........................ $ 65,810 ========= Income taxes............................. $ 28,202 ========= Minority interest........................ $ 5,365 ========= Net income (loss)........................ $ 32,243 ========= Depreciation and amortization............ $ 23,651 ========= Interest expense......................... $ 8,629 ========= Capital expenditures..................... $ 17,087 ========= Gross identifiable assets at December 31, 1997..................................... $ 559,665 ========= Intersegment eliminations................ $(155,611) ========= Net identifiable assets at December 31, 1997..................................... $ 404,054 =========
F-24 EX-3.2 2 AMENDED & RESTATED BY-LAWS 1 Exhibit 3.2 BY-LAWS OF THE PIONEER GROUP, INC. ARTICLE 1 - Stockholders ------------------------------- 1.1 Place of Meetings. All meetings of stockholders shall be held at such place within or without the State of Delaware as may be designated from time to time by the Board of Directors or the President or, if not so designated, at the registered office of the corporation. 1.2 Annual Meeting. (a) The annual meeting of stockholders for the election of directors and for the transaction of such other business as may properly be brought before the meeting shall be held on the second Tuesday in May in each year, at a time fixed by the Board of Directors or the President. If this date shall fall upon a legal holiday at the place of the meeting, then such meeting shall be held on the next succeeding business day at the same hour. If no annual meeting is held in accordance with the foregoing provisions, the Board of Directors shall cause the meeting to be held as soon thereafter as convenient. (b) Notice of Business at Annual Meetings. At an annual meeting of stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, such business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, if such business relates to the election of directors of the Corporation, the procedures in subsection (c) of this Section 1.2 must be complied with. If such business relates to any other matter, the stockholder must have given timely notice thereof in writing to the Secretary. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the date on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever occurs first. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything in the By-laws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedure set forth in this Section 1.2(b) and except that any stockholder proposal which complies with Rule 14a-8 of the 2 proxy rules (or any successor provisions) promulgated under the Securities Exchange Act of 1934, as amended, and is to be included in the Corporation's proxy statement for an annual meeting of stockholders shall be deemed to comply with the requirements of this Section 1.2(b). (c) Nomination of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nomination for election to the Board of Directors of the Corporation at an annual meeting of stockholders may be made by the Board of Directors or by any stockholder of the Corporation entitled to vote for the election of directors at such meeting who complies with the notice procedures set forth in this Section 1.2(c). Such nominations, other than those made by or on behalf of the Board of Directors, shall be made by notice in writing delivered or mailed by first class United States mail, postage prepaid, to the Secretary, and received not less than 60 days nor more than 90 days prior to such meeting; provided, however, that if less than 70 days' notice or prior public disclosure of the date of the meeting is given to stockholders, such nomination shall have been mailed or delivered to the Secretary not later than the close of business on the 10th day following the day on which the notice of the meeting was mailed or such public disclosure was made, whichever occurs first. Such notice shall set forth (i) as to each proposed nominee, (A) the name, age, business address and, if known, residence address of each such nominee, (B) the principal occupation or employment of each such nominee, (C) the number of shares of stock of the Corporation which are beneficially owned by each such nominee, and (D) any other information concerning the nominee that must be disclosed as to nominees in proxy solicitations pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to be named as a nominee and to serve as a director if elected); and (ii) as to the stockholder giving the notice (A) the name and address, as they appear on the Corporation's books, of such stockholder and (B) the class and number of shares of the Corporation which are beneficially owned by such stockholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation. The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. 1.3 Special Meetings. Special meetings of stockholders may be called at any time by the President or by the Board of Directors. Special meetings of stockholders shall be called by the President or Secretary upon the written request of one or more stockholders who hold in the aggregate at least ten percent of the shares of the capital stock entitled to vote at the meeting; such request must state the purpose or purposes of the proposed meeting. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. 1.4 Notice of Meetings. Except as otherwise provided by law, written notice of each meeting of stockholders, whether annual or special, shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. The -2- 3 notices of all meetings shall state the place, date and hour of the meeting. The notice of a special meeting shall state, in addition, the purpose or purposes for which the meeting is called. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. 1.5 Voting List. The officer who has charge of the stock ledger of the corporation shall prepare, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, at a place within the city where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time of the meeting, and may be inspected by any stockholder who is present. 1.6 Quorum. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, the holders of a majority of the shares of the capital stock of the corporation issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business. 1.7 Adjournments. Any meeting of stockholders may be adjourned to any other time and to any other place at which a meeting of stockholders may be held under these By-Laws by the stockholders present or represented at the meeting and entitled to vote, although less than a quorum, or, if no stockholder is present., by any officer entitled to preside at or to act as Secretary of such meeting. It shall not be necessary to notify any stockholder of any adjournment of less than 30 days if the time and place of the adjourned meeting are announced at the meeting at which adjournment is taken, unless after the adjournment a new record date is fixed for the adjourned meeting. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. 1.8 Voting and Proxies. Each stockholder shall have one vote for each share of stock entitled to vote held of record by such stockholder and a proportionate vote for each fractional share so held, unless otherwise provided in the Certificate of Incorporation. Each stockholder of record entitled to vote at a meeting of stockholders, or to express consent or dissent to corporate action in writing without a meeting, may vote or express such consent or dissent in person or may authorize another person or persons to vote or act for him by written proxy executed by the stockholder or his authorized agent and delivered to the Secretary of the corporation. No such proxy shall be voted or acted upon after three years from the date of its execution, unless the proxy expressly provides for a longer period. 1.9 Action at Meeting. When a quorum is present at any meeting, the holders of a majority of the stock present or represented and voting on a matter (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class, the holders of a majority of the stock of that class present or represented and voting on a matter) shall decide any matter to be voted upon by the stockholders at such meeting, except when a different vote is required by express provision of law, the Certificate of Incorporation or these -3- 4 By-Laws. Any election by stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote at the election. 1.10 Action without Meeting. Any action required or permitted to be taken at any annual or special meeting of stockholders of the corporation may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote on such action were present and voted. Prompt notice of the taking of corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE 2 - Directors --------------------------- 2.1 General Powers. The business and affairs of the corporation shall be managed by or under the direction of a Board of Directors, who may exercise all of the powers of the corporation except as otherwise provided by law, the Certificate of Incorporation or these By-Laws. In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled. 2.2 Number; Election; Tenure and Qualification. The number of directors which shall constitute the whole Board shall be fixed by resolution of the Board of Directors, but in no event shall be less than one. Each director shall be elected by the stockholders at the annual meeting and shall hold office until the next annual meeting and until his successor is elected and qualified, or until his earlier death, resignation or removal. Directors need not be stockholders of the corporation. 2.3 Enlargement of the Board. The number of the Board of Directors may be increased at any time by vote of a majority of the directors then in office. 2.4 Vacancies. Unless and until filled by the stockholders, any vacancy in the Board of Directors, however occurring, including a vacancy resulting from an enlargement of the Board, may be filled by vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office, and a director chosen to fill a position resulting from an increase in the number of directors shall hold office until the next annual meeting of stockholders and until his successor is elected and qualified, or until his earlier death, resignation or removal. 2.5 Resignation and Removal. Any director may resign by delivering his written resignation to the corporation at its principal office or to the President or Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. -4- 5 2.6 Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place, either within or without the State of Delaware, as shall be determined from time to time by the Board of Directors; provided that any director who is absent when such a determination is made shall be given notice of the determination. A regular meeting of the Board of Directors may be held without notice immediately after and at the same place as the annual meeting of stockholders. 2.7 Special Meetings. Special meetings of the Board of Directors may be held at any time and place, within or without the State of Delaware, designated in a call by the Chairman of the Board, President, two or more directors, or by one director in the event that there is only a single director in office. 2.8 Notice of Special Meetings. Notice of any special meeting of directors shall be given to each director by the Secretary or by the officer or one of the directors calling the meeting. Notice shall be given to each director in person, by telephone or by telegram sent to his business or home address at least 48 hours in advance of the meeting, or by written notice mailed to his business or home address at least 72 hours in advance of the meeting. A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting. 2.9 Meetings by Telephone Conference Calls. Directors or any members of any committee designated by the directors may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting. 2.10 Quorum. A majority of the number of directors fixed pursuant to Section 2.2 shall constitute a quorum at all meetings of the Board of Directors. In the event one or more of the directors shall be disqualified to vote at any meeting, then the required quorum shall be reduced by one for each such director so disqualified; provided, however, that in no case shall less than one-third (1/3) of the number so fixed constitute a quorum. In the absence of a quorum at any such meeting, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present. 2.11 Action at Meeting. At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of those present shall be sufficient to take any action, unless a different vote is specified by law, the Certificate of Incorporation or these By-Laws. 2.12 Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee of the Board of Directors may be taken without a meeting, if all members of the Board or committee, as the case may be, consent to the action in writing, and the written consents are filed with the minutes of proceedings of the Board or committee. -5- 6 2.13 Removal. Any one or more or all of the directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. 2.14 Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members of the committee present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors and subject to the provisions of the General Corporation Law of the State of Delaware, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it. Each such committee shall keep minutes and make such reports as the Board of Directors may from time to time request. Except as the Board of Directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the directors or in such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these By-Laws for the Board of Directors. 2.15 Compensation of Directors. Directors may be paid such compensation for their services and such reimbursement for expenses of attendance at meetings as the Board of Directors may from time to time determine. No such payment shall preclude any director from serving the corporation or any of its parent or subsidiary corporations in any other capacity and receiving compensation for such service. ARTICLE 3 - Officers -------------------------- 3.1 Enumeration. The officers of the corporation shall consist of a President, a Secretary, a Treasurer and such other officers with such other titles as the Board of Directors shall determine, including a Chairman of the Board, a Vice Chairman of the Board, and one or more Vice-Presidents, Assistant Treasurers, and Assistant Secretaries. The Board of Directors may appoint such other officers as it may deem appropriate. 3.2 Election. The President, Treasurer and Secretary shall be elected annually by the Board of Directors at its first meeting following the annual meeting of stockholders. Other officers may be appointed by the Board of Directors at such meeting or at any other meeting. 3.3 Qualification. The President shall be a director. No officer need be a stockholder. Any two or more offices may be held by the same person. 3.4 Tenure. Except as otherwise provided by law, by the Certificate of Incorporation or by these By-Laws, each officer shall hold office until his successor is elected and qualified, -6- 7 unless a different term is specified in the vote choosing or appointing him, or until his earlier death, resignation or removal. 3.5 Resignation and Removal. Any officer may resign by delivering his written resignation to the corporation at its principal office or to the President or Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. The Board of Directors, or a committee duly authorized to do so, may remove any officer with or without cause. Except as the Board of Directors may otherwise determine, no officer who resigns or is removed shall have any right to any compensation as an officer for any period following his resignation or removal, or any right to damages on account of such removal, whether his compensation be by the month or by the year or otherwise, unless such compensation is expressly provided in a duly authorized written agreement with the corporation. 3.6 Vacancies. The Board of Directors may fill any vacancy occurring in any office for any reason and may, in its discretion, leave unfilled for such period as it may determine any offices other than those of President, Treasurer and Secretary. Each such successor shall hold office for the unexpired term of his predecessor and until his successor is elected and qualified, or until his earlier death, resignation or removal. 3.7 Chairman of the Board and Vice-Chairman of the Board. If the Board of Directors appoints a Chairman of the Board, he shall, when present, preside at all meetings of the Board of Directors. He shall perform such duties and possess such powers as are usually vested in the office of the Chairman of the Board or as may be vested in him by the Board of Directors. If the Board of Directors appoints a Vice-Chairman of the Board, he shall, in the absence or disability of the Chairman of the Board, perform the duties and exercise the powers of the Chairman of the Board and shall perform such other duties and possess such other powers as may from time to time be vested in him by the Board of Directors. 3.8 President. The President shall be the chief operating officer of the corporation. He shall also be the chief executive officer of the corporation unless such title is assigned to a Chairman of the Board. The President shall, subject to the direction of the Board of Directors, have general supervision and control of the business of the corporation. Unless otherwise provided by the directors, he shall preside at all meetings of the stockholders and of the Board of Directors (except as provided in Section 3.7 above). The President shall perform such other duties and shall have such other powers as the Board of Directors may from time to time prescribe. 3.9 Vice Presidents. Any Vice President shall perform such duties and possess such powers as the Board of Directors or the President may from time to time prescribe. In the event of the absence, inability or refusal to act of the President, the Vice President (or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors) shall perform the duties of the President and when so performing shall have all the powers of and be subject to all the restrictions upon the President. The Board of Directors may assign to any Vice -7- 8 President the title of Executive Vice President, Senior Vice President or any other title selected by the Board of Directors. 3.10 Secretary and Assistant Secretaries. The Secretary shall perform such duties and shall have such powers as the Board of Directors or the President may from time to time prescribe. In addition, the Secretary shall perform such duties and have such powers as are incident to the office of the secretary, including without limitation the duty and power to give notices of all meetings of stockholders and special meetings of the Board of Directors, to attend all meetings of stockholders and the Board of Directors and keep a record of the proceedings, to maintain a stock ledger and prepare lists of stockholders and their addresses as required, to be custodian of corporate records and the corporate seal and to affix and attest to the same on documents. Any Assistant Secretary shall perform such duties and possess such powers as the Board of Directors, the President or the Secretary may from time to time prescribe. In the event of the absence, inability or refusal to act of the Secretary, the Assistant Secretary, (or if there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Secretary. In the absence of the Secretary or any Assistant Secretary at any meeting of stockholders or directors, the person presiding at the meeting shall designate a temporary secretary to keep a record of the meeting. 3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform such duties and shall have such powers as may from time to time be assigned to him by the Board of Directors or the President. In addition, the Treasurer shall perform such duties and have such powers as are incident to the office of treasurer, including without limitation the duty and power to keep and be responsible for all funds and securities of the corporation, to deposit funds of the corporation in depositories selected in accordance with these By-Laws, to disburse such funds as ordered by the Board of Directors, to make proper accounts of such funds, and to render as required by the Board of Directors statements of all such transactions and of the financial condition of the corporation. The Assistant Treasurers shall perform such duties and possess such powers as the Board of Directors, the President or the Treasurer may from time to time prescribe. In the event of the absence, inability or refusal to act of the Treasurer, the Assistant Treasurer, (or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Treasurer. 3.12 Bonded Officers. The Board of Directors may require any officer to give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors upon such terms and conditions as the Board of Directors may specify, including without limitation a bond for the faithful performance of his duties and for the restoration to the corporation of all property in his possession or under his control belonging to the corporation. -8- 9 3.13 Salaries. Officers of the corporation shall be entitled to such salaries, compensation or reimbursement as shall be fixed or allowed from time to time by the Board of Directors. ARTICLE 4 - Capital Stock ------------------------------- 4.1 Issuance of Stock. Unless otherwise voted by the stockholders and subject to the provisions of the Certificate of Incorporation, the whole or any part of any unissued balance of the authorized capital stock of the corporation or the whole or any part of any unissued balance of the authorized capital stock of the corporation held in its treasury may be issued, sold, transferred or otherwise disposed of by vote of the Board of Directors in such manner, for such consideration and on such terms as the Board of Directors may determine. 4.2 Certificates of Stock. Every holder of stock of the corporation shall be entitled to have a certificate, in such form as may be prescribed by law and by the Board of Directors, certifying the number and class of shares owned by him in the corporation. Each such certificate shall be signed by, or in the name of the corporation by, the Chairman or Vice Chairman, if any, of the Board of Directors, or the President or a Vice-President, and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation. Any or all of the signatures on the certificate may be a facsimile. Each certificate for shares of stock which are subject to any restriction on transfer pursuant to the Certificate of Incorporation, the By-Laws, applicable securities laws or any agreement among any number of shareholders or among such holders and the corporation shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restriction. 4.3 Transfers. Subject to the restrictions, if any, stated or noted on the stock certificates, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment or power of attorney properly executed, and with such proof of authority or the authenticity of signature as the corporation or its transfer agent may reasonably require. Except as may be otherwise required by law, by the Certificate of Incorporation or by these By-Laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect to such stock, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the corporation in accordance with the requirements of these By-Laws. 4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a new certificate of stock in place of any previously issued certificate alleged to have been lost, stolen, or destroyed, upon such terms and conditions as the Board of Directors may prescribe, including the presentation of reasonable evidence of such loss, theft or destruction and the giving of such indemnity as the Board of Directors may require for the protection of the corporation or any transfer agent or registrar. -9- 10 4.5 Record Date. The Board of Directors may fix in advance a date as a record date for the determination of the stockholders entitled to notice of or to vote at any meeting of stockholders or to express consent (or dissent) to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action. Such record date shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action to which such record date relates. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the day on which the meeting is held. The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed. The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to such purpose. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE 5 - Indemnification --------------------------------- 5.1 Actions, Suits or Proceedings Other than by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was or has agreed to become a director or officer of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director, officer, employee or trustee of another corporation, partnership, joint venture, trust or other enterprise (all such persons being referred to hereafter as an "Indemnitee"), or by reason of any action alleged to have been taken or omitted in such capacity, against costs, charges, expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Notwithstanding anything to the contrary in this Article, except as set forth in Section 5, the Corporation shall not indemnify an Indemnitee seeking indemnification in connection with a proceeding (or part -10- 11 thereof) initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the Corporation. 5.2 Actions or Suits by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was or has agreed to become a director or officer of the Corporation or by reason of any action alleged to have been taken or omitted in such capacity, against costs, charges and expenses (including attorneys' fees) actually and reasonably incurred by him or on his behalf in connection with the defense or settlement of such action or suit and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such costs, charges and expenses which the Court of Chancery or such other court shall deem proper. 5.3 Indemnification for Costs, Charges and Expenses of Successful Party. Notwithstanding the other provisions of this Article, to the extent that an Indemnitee has been successful, on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice or the settlement of an action without admission of liability, in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article, or in defense of any claim, issue or matter therein, or on appeal from any such action, suit or proceeding, he shall be indemnified against all costs, charges and expense (including attorneys' fees) actually and reasonably incurred by him or on his behalf in connection therewith. 5.4 Notification and Defense of Claim. As a condition precedent to his right to be indemnified, the Indemnitee must give to the Corporation notice in writing as soon as practicable of any action, suit, proceeding or investigation involving him for which indemnity will or could be sought. With respect to an action, suit, proceeding or investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to such Indemnitee. After notice from the Corporation to the Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such claim, other than as provided below in this Section. The Indemnitee shall have the right to employ his own counsel in connection with such claim, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and the Indemnitee in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the Corporation, except as -11- 12 otherwise expressly provided by this Article. The Corporation shall not be entitled to assume the defense of any claim brought by or on behalf of the Corporation or as to which counsel for the Indemnitee shall have reasonably made the conclusion provided for in (ii) above. 5.5 Advances of Costs, Charges and Expenses. In the event that the Company does not assume the defense pursuant to Section 4 of this Article of any action, suit, proceeding or investigation about which the Corporation receives notice under this Article, any costs, charges and expenses (including attorneys' fees) incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter, provided, however, that the payment of such costs, charges and expenses incurred by an Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that such Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article. 5.6 Procedure for Indemnification. Any indemnification or advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of the Indemnitee, unless with respect to requests under Section 1 or 2, a determination is made within such 60-day period by the Board of Directors of the Corporation by a majority vote of a quorum of disinterested directors that such Indemnitee did not meet the applicable standard of conduct set forth in Section 1 or Section 2, as the case may be. In the event no quorum of disinterested directors is obtainable, the Board of Directors shall promptly direct that independent legal counsel shall determine, based on facts known to such counsel at such time, whether such Indemnitee met the applicable standard of conduct set forth in such Sections; and, in such event, indemnification shall be made to the Indemnitee unless within 60 days after receipt by the Corporation of the request by such Indemnitee for indemnification, such independent legal counsel in a written opinion determines that the Indemnitee has not met the applicable standard of conduct. The right to indemnification or advances as granted by this Article shall be enforceable by the Indemnitee in any court of competent jurisdiction if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within the 60-day period referred to above. Such Indemnitee's costs and expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation. 5.7 Subsequent Amendment. No amendment, termination or repeal of this Article or of relevant provisions of the Delaware General Corporation Law or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of, or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal. 5.8 Other Rights. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification may be entitled under any law (common or statutory), agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in any other capacity while -12- 13 holding office for the Corporation, and shall continue as to a person who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of such person. Nothing contained in this Article shall be deemed to prohibit, and the Corporation is specifically authorized to enter into, agreements with officers and directors providing indemnification rights and procedures different from those set forth herein. In addition, the Corporation, acting through its Board of Directors, may grant indemnification rights to other employees or agents of the Corporation and such rights may be equivalent to or greater or less than those set forth in this Article. 5.9 Partial Indemnification. If an Indemnitee is entitled under any provision of this Article to indemnification by the Corporation for some or a portion of the costs, charges, expenses, judgments or fines actually and reasonably incurred by him in the investigation, defense, appeal or settlement of any proceeding but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such costs, charges, expenses, judgments or fines to which such Indemnitee is entitled. 5.10 Insurance. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. 5.11 Merger, Consolidation, Etc. If the Corporation is merged into or consolidated with another corporation and the Corporation is not the surviving corporation, or if substantially all of the assets or stock of the Corporation is acquired by any other corporation, or in the event of any other similar reorganization involving the Corporation, the Board of Directors of the Corporation or the board of directors of any corporation assuming the obligations of the Corporation shall assume the obligations of the Corporation under this Article, with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the date of such merger, consolidation, acquisition or reorganization. 5.12 Savings Clause. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any costs, charges, expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated and to the full extent permitted by applicable law. 5.13 Definitions. Terms used herein and defined in Section 145(h) and Section 145(i) of the Delaware General Corporation Law shall have the respective meanings assigned to such terms in such Section 145(h) and Section 145(i). 5.14 Subsequent Legislation. If the Delaware General Corporation Law is amended after adoption of this Article to further expand the indemnification permitted to Indemnitees, -13- 14 then the Corporation shall indemnify such persons to the fullest extent permitted by the Delaware General Corporation Law, as so amended." ARTICLE 6 - General Provisions ------------------------------------ 6.1 Fiscal Year. Except as from time to time otherwise designated by the Board of Directors, the fiscal year of the corporation shall begin on the first day of January in each year and end on the last day of December in each year. 6.2 Corporate Seal. The corporate seal shall be in such form as shall be approved by the Board of Directors. 6.3 Execution of Instruments. The President or the Treasurer shall have power to execute and deliver on behalf and in the name of the corporation any instrument requiring the signature of an officer of the corporation, except as otherwise provided in these By-Laws, or where the execution and delivery of such an instrument shall be expressly delegated by the Board of Directors to some other officer or agent of the corporation. 6.4 Waiver of Notice. Whenever any notice whatsoever is required to be given by law, by the Certificate of Incorporation or by these By-Laws, a waiver of such notice either in writing signed by the person entitled to such notice or such person's duly authorized attorney, or by telegraph, cable or any other available method, whether before, at or after the time stated in such waiver, or the appearance of such person or persons at such meeting in person or by proxy, shall be deemed equivalent to such notice. 6.5 Voting of Securities. Except as the directors may otherwise designate, the President or Treasurer may waive notice of, and act as, or appoint any person or persons to act as, proxy or attorney-in-fact for this corporation (with or without power of substitution) at, any meeting of stockholders or shareholders of any other corporation or organization, the securities of which may be held by this corporation. 6.6 Evidence of Authority. A certificate by the Secretary, or an Assistant Secretary, or a temporary Secretary, as to any action taken by the stockholders, directors, a committee or any officer or representative of the corporation shall as to all persons who rely on the certificate in good faith be conclusive evidence of such action. 6.7 Certificate of Incorporation. All references in these By-Laws to the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the corporation, as amended and in effect from time to time. 6.8 Transactions with Interested Parties. No contract or transaction between the corporation and one or more of the directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of the directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or a committee of the Board of Directors which authorizes the contract or transaction or solely because his or their votes are counted for such purpose, if: -14- 15 (1) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (2) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee of the Board of Directors, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. 6.9 Severability. Any determination that any provision of these By-Laws is for any reason inapplicable, illegal or ineffective shall not affect or invalidate any other provision of these By-Laws. 6.10 Pronouns. All pronouns used in these By-Laws shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons may require. ARTICLE 7 - Amendments ---------------------------- 7.1 By the Board of Directors. These By-Laws may be altered, amended or repealed or new by-laws may be adopted by the affirmative vote of a majority of the directors present at any regular or special meeting of the Board of Directors at which a quorum is present. 7.2 By the Stockholders. These By-Laws may be altered, amended or repealed or new by-laws may be adopted by the affirmative vote of the holders of a majority of the shares of the capital stock of the corporation issued and outstanding and entitled to vote at any regular meeting of stockholders, or at any special meeting of stockholders, provided notice of such alteration, amendment, repeal or adoption of new by-laws shall have been stated in the notice of such special meeting. -15- EX-10.87 3 AMENDMENT #9 TO CREDIT AGREEMENT 1 Exhibit 10.87 EXECUTION COPY -------------- THE PIONEER GROUP, INC. CREDIT AGREEMENT Amendment No. 9 --------------- This Agreement, dated as of November 9, 1999, is among The Pioneer Group, Inc., a Delaware corporation (the "Company"), certain of its subsidiaries listed on the signature pages hereto, the Lenders (as defined in the Credit Agreement referenced below) and BankBoston, N.A., f/k/a The First National Bank of Boston, as agent (the "Agent") for itself and the other Lenders. The parties agree as follows: 1. Reference to Credit Agreement; Definitions. Reference is made to the Credit Agreement dated as of June 6, 1996, among the Company, certain of its subsidiaries, the Lenders and the Agent (as amended, modified and in effect prior to giving effect to this Agreement, the "Credit Agreement"). Terms defined in the Credit Agreement as amended hereby (the "Amended Credit Agreement") and not otherwise defined herein are used herein with the meanings so defined. Except as the context otherwise explicitly requires, the capitalized terms "Section" and "Exhibit" refer to sections hereof and exhibits hereto. 2. Amendments to Credit Agreement. Subject to all of the terms and conditions hereof and in reliance upon the representations and warranties set forth in Section 3, the Credit Agreement is amended as follows, effective upon the date (the "Amendment Date") that the conditions specified in Section 4 are satisfied, which conditions must be satisfied no later than November 9, 1999 or this Agreement shall be of no force or effect: 2.1 Amendment of Section 1.4. Section 1.4 of the Credit Agreement is amended to read in its entirety as follows: "1.4 "Applicable Margin" means, (1) with respect to any portion of the Revolving Loan subject to a Pricing Option, 2.75%, and (2) with respect to each other portion of the Revolving Loan, 0.25%." 2.2. Amendment to Section 1.101. Section 1.101 of the Credit Agreement is amended to read in its entirety as follows: "1.101. "Maximum Amount of Revolving Credit" means the lesser of (i) $55,000,000 or such lesser amount to which the lending commitment of the Lenders may be reduced pursuant to Section 4, and (ii) such amount (in a minimum amount of $10,000,000 and an integral multiple of $5,000,000) less than the Maximum Amount of Revolving Credit then in effect as specified by irrevocable notice from the Company to the Agent." -1- 2 2.3. Amendment to Section 1.49. Section 1.49 of the Credit Agreement is amended to read in its entirety as follows: "1.49. "Consolidated Tangible Net Worth" means, at any date, the total of: (a) stockholders' equity of the Company and its Subsidiaries (excluding the effect of any foreign currency translation adjustments) determined in accordance with GAAP on a Consolidated basis, minus (b) the amount by which such stockholders' equity has been increased by the write-up of any asset of the Company and its Subsidiaries (excluding any write-ups net of write-downs associated with any venture capital investments of the Company and its Subsidiaries), minus (c) assets of the Company and its Subsidiaries that are considered intangible assets under GAAP (including but not limited to customer lists, goodwill, computer software and capitalized research and development costs other than the capitalized development costs relating to the natural resource business operations of the Company or any of its Subsidiaries), plus (d) the amount by which such stockholders' equity has been decreased by the after-tax noncash write-down of assets employed in the Company's and its Subsidiaries' international operations, up to an aggregate of all such write-downs of $12,500,000." 2.4. Amendment to Section 7.5.3. Section 7.5.3 of the Credit Agreement is amended to read in its entirety as follows: "7.5.3. Consolidated Tangible Net Worth. Consolidated Tangible Net Worth shall: (a) prior to September 30, 1999, at all times equal or exceed $120,000,000; provided, however, that on the first day of each fiscal quarter of the Company beginning with the fiscal quarter ending December 31, 1998, such dollar amount shall be increased by an amount equal to 50% of the sum of (i) Consolidated Net Income (only if in excess of zero) and (ii) the after-tax gain on the sale or disposition of assets or capital stock of Pioneer Goldfields Entities for the fiscal quarter then most recently ended, and (b) on and after September 30, 1999, at all times equal or exceed $72,500,000; provided, however, that on the first day of each fiscal quarter of the Company beginning with the fiscal quarter ending September 30, 1999, such dollar amount shall be increased by an amount equal to 50% of the sum of (i) Consolidated Net Income (only if in excess of zero) and (ii) the after-tax gain on the sale or disposition of assets or capital stock of Pioneer Goldfields Entities for the fiscal quarter then most recently ended." -2- 3 2.5. Addition of a new Section 7.9.A Section 7.9.A of the Credit Agreement is added immediately after 7.9 to read in its entirety as follows: "7.9.A Cash Expenditures. The Company and each of its Subsidiaries shall restrict the net amount of cash expended on international operations and timber operations as follows: 7.9.A.1. On and after October 1, 1999, and through March 31, 2000, the Company and each of its Subsidiaries shall not expend cash in connection with the Company's or any Subsidiary's international operations that exceeds $10,000,000, net of any cash provided by such international operations. 7.9.A.2. In the twelve (12) month period commencing April 1, 2000 and ending March 31, 2001, the Company and each of its Subsidiaries shall not expend cash in connection with the Company's or any Subsidiary's international operations that in the aggregate exceeds $15,000,000, net of any cash provided by such international operations. 7.9.A.3. On and after October 1, 1999, the Company and each of its Subsidiaries shall not expend cash in connection with the Company's or any Subsidiary's timber operations that exceed $3,000,000, net of any cash provided by such timber operations. 7.9.A.4. For purposes of this Section 7.9.A, references to international operations shall not include any operations of the Company's Core Mutual Fund Subsidiaries and any Subsidiaries of such Core Mutual Fund Subsidiaries." 2.6 Amendment to Exhibit 9.1.2. Exhibit 9.1.2 of the Credit Agreement (Officers of the Company) is amended to read in its entirety as set forth on Exhibit 9.1.2 hereto. 2.7 Amendment to Exhibit 11.1. Exhibit 11.1 of the Credit Agreement (Percentage Interests) is amended to read in its entirety as set forth on Exhibit 11.1 hereto. 3. Representations and Warranties. In order to induce the Lenders to enter into this Agreement, each of the Company and the Guarantors represents and warrants to each of the Lenders that: 3.1. Legal Existence, Organization. Each of the Company and its Subsidiaries is duly organized and validly existing and in good standing under the laws of the jurisdiction of its incorporation, with all power and authority, corporate or otherwise, necessary to (i) enter into and perform this Agreement, the Amended Credit Agreement and each other Credit Document to which it is party and (ii) own its properties and carry on the business now conducted or proposed to be conducted by it. Each of the Company and its Subsidiaries has taken, or shall have taken on or prior to the Amendment Date, all corporate or other action required to make the provisions of this Agreement, the Amended Credit Agreement and each other Credit Document to which it is party the valid and enforceable obligations they purport to be. -3- 4 3.2. Enforceability. The Company and each of its Subsidiaries which are signatories hereto have duly executed and delivered this Agreement. Each of this Agreement and the Amended Credit Agreement is the legal, valid and binding obligation of the Company and such Subsidiaries and is enforceable in accordance with its terms. 3.3. No Legal Obstacle to Agreements. Neither the execution, delivery or performance of this Agreement, nor the performance of the Amended Credit Agreement, nor the consummation of any other transaction referred to in or contemplated by this Agreement, nor the fulfillment of the terms hereof or thereof, has constituted or resulted in or will constitute or result in: (1) any breach or termination of the provisions of any agreement, instrument, deed or lease to which the Company or any Subsidiary is a party or by which it is bound, or of the Charter or By-laws of the Company or any Subsidiary; (2) the violation of any law, judgment, decree or governmental order, rule or regulation applicable to the Company or any Subsidiary; (3) the creation under any agreement, instrument, deed or lease of any Lien upon any of the assets of the Company or any Subsidiary; or (4) any redemption, retirement or other repurchase obligation of the Company or any Subsidiary under any Charter, By-law, agreement, instrument, deed or lease. No approval, authorization or other action by, or declaration to or filing with, any governmental or administrative authority or any other Person is required to be obtained or made by the Company or any Subsidiary in connection with the execution, delivery and performance of this Agreement or the performance of the Amended Credit Agreement, or the consummation of the transactions contemplated hereby or thereby. 3.4. No Default. After giving effect to the amendments set forth in Section 2, no Default will exist. 3.5. Incorporation of Representations and Warranties. The representations and warranties set forth in Section 8 of the Credit Agreement, or in the case of the Guarantors, Section 6.6 of the Credit Agreement are true and correct on the date hereof as if originally made on and as of the date hereof (except to the extent any representation or warranty refers to a specific earlier date). 4. Conditions. The effectiveness of this Agreement shall be subject to the satisfaction of the following conditions: 4.1. Amendment to Note Agreement. The Note Agreement dated August 14, 1997 among the Company and its Subsidiaries listed as Guarantors (including other Subsidiaries of the Company that from time to time become party thereto) and the Travelers Insurance Company shall have been amended to impose no more stringent Consolidated Tangible Net Worth covenant levels -4- 5 and other terms and conditions on the Company than those contained in the Amended Credit Agreement, which terms and conditions shall be satisfactory to the Lenders. 4.2. Investment Assets Under Management. On the Amendment Date, the aggregate investment assets under management by the Company and its Subsidiaries shall equal or exceed $20,000,000,000, and the Company shall have furnished to the Agent on such date a certificate to such effect signed by an Executive Officer or a Financial Officer. 4.3. Delivery of Financial Information. (a) The Company shall have delivered to the Lenders the quarterly reports for the fiscal quarter ended September 30, 1999, including all information specified in Section 7.4.2 of the Credit Agreement; provided, however, that the Company's Form 10-Q for the fiscal year ended September 30, 1999, shall be delivered as soon as it becomes available. (b) The Company shall have provided for the period commencing October 1, 1999 through June 30, 2000, monthly cash flow forecasts. 4.4. Fees. (a) In accordance with their Percentage Interests, in exchange for an affirmative vote for entering into this Agreement, the Borrower shall have paid to the Agent for the account of the Lenders, an amount equal to 0.50% of the Maximum Amount of the Revolving Credit. (b) The Company shall have paid all fees due to the Agent or other lenders and all reasonable fees and disbursements of Ropes & Gray, special counsel to the Lenders. 4.5. Officer's Certificate. The representations and warranties contained in Section 3 shall be true and correct as of the Amendment Date with the same force and effect as though originally made on and as of such date; no Default shall exist on the Amendment Date immediately prior to and after giving effect to this Agreement; as of the Amendment Date, no Material Adverse Change shall have occurred; and the Company shall have furnished to the Agent on the Amendment Date a certificate to these effects, in substantially the form of Exhibit 4.5, signed by an Executive Officer or a Financial Officer. 4.6. Proper Proceedings. All proper corporate proceedings shall have been taken by each of the Company and the Subsidiaries to authorize this Agreement, the Amended Credit Agreement and the transactions contemplated hereby and thereby. The Agent shall have received copies of all documents, including legal opinions of counsel and records of corporate proceedings which the Agent may have requested in connection therewith, such documents, where appropriate, to be certified by proper corporate or governmental authorities. 4.7. Legal Opinion. The Lenders shall have received from Robert P. Nault, General Counsel of The Pioneer Group, Inc., Counsel of the Company and the Subsidiaries, an opinion -5- 6 with respect to the transactions contemplated by this Amendment, which opinion shall be in form and substance satisfactory to the Lenders. 4.8. Execution by Lenders. The Lenders owning at least a majority of the Percentage Interests under the Credit Agreement shall have executed and delivered this Agreement to the Company. 5. Further Assurances. Each of the Company and the Subsidiaries will, promptly upon request of the Agent from time to time, execute, acknowledge and deliver, and file and record, all such instruments and notices, and take all such action, as the Agent deems necessary or advisable to carry out the intent and purposes of this Agreement. 6. General. The Amended Credit Agreement and all of the other Credit Documents are each confirmed as being in full force and effect. This Agreement, the Amended Credit Agreement and the other Credit Documents referred to herein or therein constitute the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior and current understandings and agreements, whether written or oral, with respect to such subject matter. The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other term or provision hereof. The headings in this Agreement are for convenience of reference only and shall not alter, limit or otherwise affect the meaning hereof. Each of this Agreement and the Amended Credit Agreement is a Credit Document and may be executed in any number of counterparts, which together shall constitute one instrument, and shall bind and inure to the benefit of the parties and their respective successors and assigns, including as such successors and assigns all holders of any Note. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE COMMONWEALTH OF MASSACHUSETTS. -6- 7 Each of the undersigned has caused this Agreement to be executed and delivered by its duly authorized officer as an agreement under seal as of the date first above written. THE PIONEER GROUP, INC. PIONEERING SERVICES CORPORATION By : /s/ Eric W. Reckard By: /s/ Eric W. Reckard -------------------------------------- ------------------------------- Title: Executive Vice President, Title: Treasurer Chief Financial Officer and Treasurer 60 State Street 60 State Street Boston, Massachusetts 02109-1820 Boston, Massachusetts 02109-1820 PIONEER INVESTMENT MANAGEMENT, INC. By: /s/ Eric W. Reckard -------------------------------------- Title: Treasurer 60 State Street Boston, Massachusetts 02109-1820 PIONEER MANAGEMENT (IRELAND) LTD. By: /s/ John F. Cogan, Jr. -------------------------------------- Title: Director 60 State Street Boston, Massachusetts 02109-1820 PIONEER FUNDS DISTRIBUTOR, INC. By: /s/ Eric W. Reckard -------------------------------------- Title: Treasurer 60 State Street Boston, Massachusetts 02109-1820 -7- 8 BANKBOSTON, N.A. By:/s/ Matthew Steinaway --------------------------- Title: Vice President Financial Institutions Division 100 Federal Street - 15th Floor Boston, Massachusetts 02110 Telecopy: (617) 434-1537 Telex: 940581 THE BANK OF NEW YORK By:/s/ Scott H. Buitekant --------------------------- Title: Vice President One Wall Street, 17th Floor Mutual Fund Banking Division New York, NY 10286 Telecopy: (212) 635-6348 Telex: SOCIETE GENERALE By:/s/ Dabney Giles Treacy --------------------------- Title: Vice President 1221 Avenue of the Americas New York, New York 10020 Telecopy: (212) 278-7153 -8- 9 CITIZENS BANK OF MASSACHUSETTS By:/s/ Michael St. Jean --------------------------- Title: Vice President 100 Summer Street Boston, MA 02110 Telecopy: (617) 338-4041 BANQUE NATIONALE DE PARIS By: /s/ Laurent Vanderzyppe --------------------------- Title: Vice President By: /s/ Marguerite L. Lebon --------------------------- Title: Assistant Vice President 499 Park Avenue, 2nd Floor New York, 10022 Telecopy: (212) 415-9707 MELLON BANK, N.A. By: /s/ John R. Cooper --------------------------- Title: Vice President One Mellon Bank Center Mail Code: 1510370 Pittsburgh, PA 15258 Telecopy: (412) 234-8087 -9- 10 EXHIBIT 4.5 OFFICER'S CERTIFICATE Pursuant to Section 4.5 of Amendment No. 9 to Credit Agreement dated as of November __, 1999 (the "Amendment") among The Pioneer Group, Inc., a Delaware corporation (the "Company"), certain of its subsidiaries signatories thereto, the Lenders and BankBoston, N.A., f/k/a The First National Bank of Boston, as agent (the "Agent") for itself and the other Lenders, which amends the Credit Agreement dated as of June 6, 1996 (as amended, modified and in effect after giving effect to the Amendment, the "Credit Agreement"), among the Company, certain of its subsidiaries signatories thereto, the Lenders and the Agent, the Company hereby certifies that the representations and warranties contained in Section 3 of the Amendment are true and correct on and as of the date hereof with the same force and effect as though originally made on and as of the date hereof; no Default exists on the date hereof or will exist after giving effect to the Amendment; and as of the date hereof, no Material Adverse Change has occurred; and, as of the date hereof, the aggregate investment assets under management by the Company and its Subsidiaries equals or exceeds $15,000,000,000. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings so defined. This certificate has been executed by a duly authorized Executive Officer or Financial Officer this 9th day of November, 1999. THE PIONEER GROUP, INC. By: /s/ Eric W. Reckard ---------------------- Name: Eric W. Reckard Title: Executive Vice President, Chief Financial Officer and Treasurer 11 EXHIBIT 9.1.2 OFFICERS OF THE COMPANY 1. John F. Cogan, Jr. Chairman of the Board, Chief Executive Officer and President of the Company 2. Eric W. Reckard Executive Vice President, Chief Financial Officer and Treasurer of the Company and Subsidiaries 3. David D. Tripple Executive Vice President of the Company and President of Pioneer Investment Management, Inc. and Pioneer Funds Distributor, Inc. 4. William H. Smith, Jr. Executive Vice President of the Company and Director of Pioneering Services Corporation 5. Roger K. Leonard Managing Director and Chief Executive of Pioneer Goldfields Limited and Managing Director of Teberebie Goldfields Limited -11- 12 EXHIBIT 11.1 PERCENTAGE INTERESTS
Total B Share Revolving Percentage Lender Commitment Loan Loan Interest ----------------- ----------- -------- --------- ---------- BankBoston, N.A. $14,347,826.08 - $14,347,826.08 26.1% Mellon Bank $11,956,521.74 - $11,956,521.74 21.7% Citizens Bank of Massachusetts $ 9,565,217.39 - $ 9,565,217.39 17.4% Societe Generale $ 7,173,913.04 - $ 7,173,913.04 13.0% Bank of New York $ 7,173,913.04 - $ 7,173,913.04 13.0% Bank Nationale de Paris $ 4,782,608.70 - $ 4,782,608.70 8.7% -------------- -------------- ----- TOTAL $55,000,000.00 $55,000,000.00 100.0% ============== ==============
-12- EX-10.88 4 AMENDMENT #10 TO CREDIT AGREEMENT 1 Exhibit 10.88 EXECUTION COPY -------------- THE PIONEER GROUP, INC. CREDIT AGREEMENT Amendment No. 10 ---------------- This Agreement, dated as of December 13, 1999, is among The Pioneer Group, Inc., a Delaware corporation (the "Company"), certain of its subsidiaries listed on the signature pages hereto, the Lenders (as defined in the Credit Agreement referenced below) and BankBoston, N.A., f/k/a The First National Bank of Boston, as agent (the "Agent") for itself and the other Lenders. The parties agree as follows: 1. Reference to Credit Agreement; Definitions. Reference is made to the Credit Agreement dated as of June 6, 1996, among the Company, certain of its subsidiaries, the Lenders and the Agent (as amended, modified and in effect prior to giving effect to this Agreement, the "Credit Agreement"). Terms defined in the Credit Agreement as amended hereby (the "Amended Credit Agreement") and not otherwise defined herein are used herein with the meanings so defined. Except as the context otherwise explicitly requires, the capitalized terms "Section" and "Exhibit" refer to sections hereof and exhibits hereto. 2. Amendments to Credit Agreement. Subject to all of the terms and conditions hereof and in reliance upon the representations and warranties set forth in Section 3, the Credit Agreement is amended as follows, effective upon the date (the "Amendment Date") that the conditions specified in Section 4 are satisfied, which conditions must be satisfied no later than December 13, 1999 or this Agreement shall be of no force or effect: 2.1 Amendment of Section 1.80. Section 1.80 of the Credit Agreement is amended to read in its entirety as follows: "1.80. "Guarantor" means the Company and each of the Core Mutual Fund Subsidiaries (initially other than the Excluded Subsidiaries) and other Subsidiaries, including the Excluded Subsidiaries, from time to time becoming party to this Agreement as a Guarantor, provided, however, that effective on and after January 1, 1999, Pioneer Management (Ireland) Ltd. shall no longer be a Guarantor." 2.2 Amendment of Section 1.106. Section 1.106 of the Credit Agreement is amended to read in its entirety as follows: "1.106 "Obligors" means (i) before January 1, 1999, the Borrowers and the Guarantors and (ii) on and after January 1, 1999, the Borrowers, the Guarantors and Pioneer Management (Ireland) Ltd." -1- 2 2.3. Amendment to Section 6.2. Section 6.2 of the Credit Agreement is amended to read in its entirety as follows: "6.2. Continuing Obligation. Each Guarantor acknowledges that the Lenders have entered into this Agreement (and, to the extent that the Lenders may enter into any future Credit Document, will have entered into such agreement) in reliance on this Section 6 being a continuing irrevocable agreement, and such Guarantor agrees that its guarantee may not be revoked in whole or in part without the approval of the Required Lenders. The obligations of the Guarantors hereunder shall terminate when the commitment of the Lenders to extend credit under this Agreement shall have terminated and all of the Credit Obligations have been indefeasibly paid in full in immediately available funds and discharged; provided, however, that (i) if a claim is made upon the Lenders at any time for repayment or recovery of any amounts or any property received by the Lenders from any source on account of any of the Credit Obligations and the Lenders repay or return any amounts or property so received (including interest thereon to the extent required to be paid by the Lenders) or (ii) if the Lenders become liable for any part of such claim by reason of (a) any judgment or order of any court or administrative authority having competent jurisdiction or (b) any settlement or compromise of any such claim, then the Guarantors shall remain liable under this Agreement for the amounts so repaid or returned or the amounts for which the Lenders become liable (such amounts being deemed part of the Credit Obligations) to the same extent as if such amounts had never been received by the Lenders, notwithstanding any termination hereof or the cancellation of any instrument or agreement evidencing any of the Credit Obligations. The Guarantors shall, not later than five days after receipt of notice from the Agent, pay to the Agent an amount equal to the amount of such repayment or return for which the Lenders have so become liable. Payments hereunder by a Guarantor may be required by the Agent or the Required Lenders on any number of occasions." 3. Representations and Warranties. In order to induce the Lenders to enter into this Agreement, each of the Company and the Guarantors represents and warrants to each of the Lenders that: 3.1. Legal Existence, Organization. Each of the Company and its Subsidiaries is duly organized and validly existing and in good standing under the laws of the jurisdiction of its incorporation, with all power and authority, corporate or otherwise, necessary to (i) enter into and perform this Agreement, the Amended Credit Agreement and each other Credit Document to which it is party and (ii) own its properties and carry on the business now conducted or proposed to be conducted by it. Each of the Company and its Subsidiaries has taken, or shall have taken on or prior to the Amendment Date, all corporate or other action required to make the provisions -2- 3 of this Agreement, the Amended Credit Agreement and each other Credit Document to which it is party the valid and enforceable obligations they purport to be. 3.2. Enforceability. The Company and each of its Subsidiaries which are signatories hereto have duly executed and delivered this Agreement. Each of this Agreement and the Amended Credit Agreement is the legal, valid and binding obligation of the Company and such Subsidiaries and is enforceable in accordance with its terms. 3.3. No Legal Obstacle to Agreements. Neither the execution, delivery or performance of this Agreement, nor the performance of the Amended Credit Agreement, nor the consummation of any other transaction referred to in or contemplated by this Agreement, nor the fulfillment of the terms hereof or thereof, has constituted or resulted in or will constitute or result in: (1) any breach or termination of the provisions of any agreement, instrument, deed or lease to which the Company or any Subsidiary is a party or by which it is bound, or of the Charter or By-laws of the Company or any Subsidiary; (2) the violation of any law, judgment, decree or governmental order, rule or regulation applicable to the Company or any Subsidiary; (3) the creation under any agreement, instrument, deed or lease of any Lien upon any of the assets of the Company or any Subsidiary; or (4) any redemption, retirement or other repurchase obligation of the Company or any Subsidiary under any Charter, By-law, agreement, instrument, deed or lease. No approval, authorization or other action by, or declaration to or filing with, any governmental or administrative authority or any other Person is required to be obtained or made by the Company or any Subsidiary in connection with the execution, delivery and performance of this Agreement or the performance of the Amended Credit Agreement, or the consummation of the transactions contemplated hereby or thereby. 3.4. No Default. Prior to and after giving effect to the amendments set forth in Section 2, no Default will exist. 3.5. Incorporation of Representations and Warranties. The representations and warranties set forth in Section 8 of the Credit Agreement, or in the case of the Guarantors, Section 6.6 of the Credit Agreement are true and correct on the date hereof as if originally made on and as of the date hereof (except to the extent any representation or warranty refers to a specific earlier date). -3- 4 3.6. Income of Released Guarantor. The Company projects that the operating income of Pioneer Management (Ireland) Ltd. for the fiscal year 1999 and fiscal year 2000 will be less than $2 million. 4. Conditions. The effectiveness of this Agreement shall be subject to the satisfaction of the following conditions: 4.1. Amendment to Note Agreement. The Note Agreement dated August 14, 1997, among the Company and its Subsidiaries listed as Guarantors (including other Subsidiaries of the Company that from time to time become party thereto) and the Travelers Insurance Company shall have been amended to release Pioneer Management (Ireland) Ltd. as a Guarantor on terms and conditions shall be satisfactory to the Lenders. 4.2. Investment Assets Under Management. On the Amendment Date, the aggregate investment assets under management by the Company and its Subsidiaries shall equal or exceed $20,000,000,000, and the Company shall have furnished to the Agent on such date a certificate to such effect signed by an Executive Officer or a Financial Officer. 4.3. Fees. The Company shall have paid all fees due to the Agent or other lenders and all reasonable fees and disbursements of Ropes & Gray, special counsel to the Lenders. 4.4. Officer's Certificate. The representations and warranties contained in Section 3 shall be true and correct as of the Amendment Date with the same force and effect as though originally made on and as of such date; no Default shall exist on the Amendment Date immediately prior to and after giving effect to this Agreement; as of the Amendment Date, no Material Adverse Change shall have occurred; and the Company shall have furnished to the Agent on the Amendment Date a certificate to these effects, in substantially the form of Exhibit 4.5, signed by an Executive Officer or a Financial Officer. 4.5. Proper Proceedings. All proper corporate proceedings shall have been taken by each of the Company and the Subsidiaries to authorize this Agreement, the Amended Credit Agreement and the transactions contemplated hereby and thereby. The Agent shall have received copies of all documents, including legal opinions of counsel and records of corporate proceedings which the Agent may have requested in connection therewith, such documents, where appropriate, to be certified by proper corporate or governmental authorities. 4.6. Legal Opinion. The Lenders shall have received from Robert P. Nault, General Counsel of The Pioneer Group, Inc., Counsel of the Company and the Subsidiaries, an opinion with respect to the transactions contemplated by this Amendment, which opinion shall be in form and substance satisfactory to the Lenders. -4- 5 4.7. Execution by Lenders. The Lenders owning 100% of the Percentage Interests under the Credit Agreement shall have executed and delivered this Agreement to the Company. 5. Further Assurances. Each of the Company and the Subsidiaries will, promptly upon request of the Agent from time to time, execute, acknowledge and deliver, and file and record, all such instruments and notices, and take all such action, as the Agent deems necessary or advisable to carry out the intent and purposes of this Agreement. 6. General. The Amended Credit Agreement and all of the other Credit Documents are each confirmed as being in full force and effect. This Agreement, the Amended Credit Agreement and the other Credit Documents referred to herein or therein constitute the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior and current understandings and agreements, whether written or oral, with respect to such subject matter. The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other term or provision hereof. The headings in this Agreement are for convenience of reference only and shall not alter, limit or otherwise affect the meaning hereof. Each of this Agreement and the Amended Credit Agreement is a Credit Document and may be executed in any number of counterparts, which together shall constitute one instrument, and shall bind and inure to the benefit of the parties and their respective successors and assigns, including as such successors and assigns all holders of any Note. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE COMMONWEALTH OF MASSACHUSETTS. -5- 6 Each of the undersigned has caused this Agreement to be executed and delivered by its duly authorized officer as an agreement under seal as of the date first above written. THE PIONEER GROUP, INC. PIONEERING SERVICES CORPORATION By: /s/ Eric W. Reckard By: /s/ Eric W. Reckard -------------------------- ----------------------- Title: Executive Vice President Title: Treasurer Chief Financial Officer and Treasurer 60 State Street 60 State Street Boston, Massachusetts 02109-1820 Boston, Massachusetts 02109-1820 PIONEER INVESTMENT MANAGEMENT, INC. By: /s/ Eric W. Reckard ---------------------------- Title: Treasurer 60 State Street Boston, Massachusetts 02109-1820 PIONEER MANAGEMENT (IRELAND) LTD. By: /s/ John F. Cogan, Jr. ---------------------------- Title: Director 60 State Street Boston, Massachusetts 02109-1820 PIONEER FUNDS DISTRIBUTOR, INC. By: /s/ Eric W. Reckard ---------------------------- Title: Treasurer 60 State Street Boston, Massachusetts 02109-1820 -6- 7 BANKBOSTON, N.A. By:/s/ Matthew Steinaway ---------------------------- Title: Vice President Financial Institutions Division 100 Federal Street - 15th Floor Boston, Massachusetts 02110 Telecopy: (617) 434-1537 Telex: 940581 THE BANK OF NEW YORK By:/s/ Michael B. Scaduto ---------------------------- Title: Vice President One Wall Street, 17th Floor Mutual Fund Banking Division New York, NY 10286 Telecopy: (212) 635-6348 Telex: SOCIETE GENERALE By:/s/ Daniel P. Kelly Title: Vice President 1221 Avenue of the Americas New York, New York 10020 Telecopy: (212) 278-7153 -7- 8 CITIZENS BANK OF MASSACHUSETTS By:/s/ Michael St. Jean ---------------------------- Title: Vice President 100 Summer Street Boston, MA 02110 Telecopy: (617) 338-4041 BANQUE NATIONALE DE PARIS By:/s/ Laurent Vanderzyppe ---------------------------- Title: Vice President By:/s/ Marguerite L. Lebon ---------------------------- Assistant Vice President 499 Park Avenue, 2nd Floor New York, 10022 Telecopy: (212) 415-9707 MELLON BANK, N.A. By:/s/ John R. Cooper ---------------------------- Title: Vice President One Mellon Bank Center Mail Code: 1510370 Pittsburgh, PA 15258 Telecopy: (412) 234-8087 -8- 9 EXHIBIT 4.4 OFFICER'S CERTIFICATE Pursuant to Section 4.4 of Amendment No. 10 to Credit Agreement dated as of December 13, 1999 (the "Amendment") among The Pioneer Group, Inc., a Delaware corporation (the "Company"), certain of its subsidiaries signatories thereto, the Lenders and BankBoston, N.A., f/k/a The First National Bank of Boston, as agent (the "Agent") for itself and the other Lenders, which amends the Credit Agreement dated as of June 6, 1996 (as amended, modified and in effect after giving effect to the Amendment, the "Credit Agreement"), among the Company, certain of its subsidiaries signatories thereto, the Lenders and the Agent, the Company hereby certifies that the representations and warranties contained in Section 3 of the Amendment are true and correct on and as of the date hereof with the same force and effect as though originally made on and as of the date hereof; no Default exists on the date hereof or will exist after giving effect to the Amendment; and as of the date hereof, no Material Adverse Change has occurred; and, as of the date hereof, the aggregate investment assets under management by the Company and its Subsidiaries equals or exceeds $15,000,000,000. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings so defined. This certificate has been executed by a duly authorized Executive Officer or Financial Officer this 13th day of December, 1999. THE PIONEER GROUP, INC. By: /s/ Eric W. Reckard ---------------------------- Name: Eric W. Reckard Title: Executive Vice President, Chief Financial Officer and Treasurer EX-10.89 5 SUPPLEMENTAL AGREEMENT #5 TO NOTE AGREEMENT 1 - -------------------------------------------------------------------------------- Exhibit 10.89 THE PIONEER GROUP, INC. ------------------------ SUPPLEMENTAL AGREEMENT NO. 5 Dated as of November 11, 1999 amending the Note Agreement dated as of August 14, 1997 (as amended) ------------------------ Senior Notes due 2004 - -------------------------------------------------------------------------------- 2 THE PIONEER GROUP, INC. SUPPLEMENTAL AGREEMENT NO. 5 as of November 11, 1999 Re: Senior Notes due 2004 The Travelers Insurance Company One Tower Square Hartford, CT 06183-2030 Ladies and Gentlemen: THE PIONEER GROUP, INC., a Delaware corporation (the "Company"), hereby agrees with you as follows: Section 1. NOTE AGREEMENT AMENDMENTS. Pursuant to the Note Agreement dated as of August 14, 1997, as amended by Supplemental Agreement No. 1 and Supplemental Agreement No. 2, each dated as of September 30, 1998, Supplemental Agreement No. 3, dated as of December 29, 1998 and Supplemental Agreement No. 4, dated as of June 30, 1999 (as so amended, the "Note Agreement"), entered into by the Company with The Travelers Insurance Company, the Company issued and sold $20,000,000 aggregate principal amount of its Senior Notes due 2004 (the "Notes"). Unless the context otherwise requires, capitalized terms used herein without definition have the respective meanings ascribed thereto in the Note Agreement. The Notes originally bore an interest rate of 7.95% per annum. Pursuant to Supplemental Agreement No. 1, such interest rate was changed to a floating rate of interest as therein described. Pursuant to Supplemental Agreement No. 3, such interest rate was changed to a fixed rate of 8.95% per annum. The Company has requested you, as the holder of all of the outstanding Notes, further to amend the Note Agreement and the Notes. Subject to this Supplemental Agreement No. 5 (this "Supplemental Agreement") becoming effective as hereinafter provided, the Company and the holder of the Notes do hereby agree that the Note Agreement is amended pursuant to Section 11.1 of the Note Agreement as follows: 3 2 A. Section 1 of the Note Agreement is amended by: 1. deleting the definitions of "Consolidated Tangible Net Worth", "Default Rate" and "Subsidiary Guarantors" in their entirety and replacing them with the following new definitions: "'Consolidated Tangible Net Worth' means, at any date, the total of: (a) stockholders' equity of the Company and its Subsidiaries (excluding the effect of any foreign currency translation adjustments) determined in accordance with GAAP on a consolidated basis, minus (b) the amount by which such stockholders' equity has been increased by the write-up of any asset of the Company and its Subsidiaries (excluding any write-ups net of write-downs associated with any venture capital investments of the Company and its Subsidiaries), minus (c) assets of the Company and its Subsidiaries that are considered intangible assets under GAAP (including but not limited to customer lists, goodwill, computer software and capitalized research and development costs other than the capitalized development costs relating to the natural resource business operations of the Company or any of its Subsidiaries), plus (d) the amount by which such stockholders' equity has been decreased by the after-tax noncash write-down of assets employed in the Company's and its Subsidiaries' international operations, up to an aggregate of all such write-downs of $12,500,000." * * * * "'Default Rate' means that rate of interest that is the greater of (i) 11.45% and (ii) 2% above the rate of interest publicly announced by Citibank, N.A. from time to time at its principal office in New York City at its prime rate." * * * * 4 3 B. Section 4.6 of the Note Agreement is amended by changing the definition of "Remaining Scheduled Payments" by deleting the phrase "determined for such purpose at the rate of 8.95%" and replacing it with the phrase "determined for such purpose at the rate of 9.45%". C. Section 7.5.3 is amended to read in its entirety as follows: "7.5.3. Consolidated Tangible Net Worth. Consolidated Tangible Net Worth shall, on and after September 30, 1999, at all times equal or exceed $72,500,000; provided, however, that on the first day of each fiscal quarter of the Company beginning with the fiscal quarter ending September 30, 1999, such dollar amount shall be increased by an amount equal to 50% of the sum, for the fiscal quarter then most recently ended, of (i) Consolidated Net Income (only if in excess of zero) and (ii) the after-tax gain on the sale or disposition of assets or capital stock of Pioneer Goldfield Entities." D. Section 7.6.1 is amended to read in its entirety as follows: "7.6.1. Indebtedness in respect of the Credit Obligations and the Bank Credit Facility, provided that after such Indebtedness under the Bank Credit Facility has been repaid in full and the Bank Credit Facility has been terminated, other Indebtedness of the Company (including without limitation in respect of the Credit Obligations) shall not exceed $105,000,000." E. A new Section 7.9.A is hereby added to the Note Agreement immediately after Section 7.9 to read as follows: "7.9.A. Cash Expenditures.The Company and each of its Subsidiaries shall restrict the net amount of cash expended on international operations and timber operations as follows: 7.9.A.1. During the period commencing September 30, 1999 and ending March 31, 2000, the Company and its Subsidiaries shall not expend cash in connection with the Company's or any Subsidiary's international operations that in the aggregate exceeds $10,000,000, net of any cash provided during such period by such international operations. 7.9.A.2. During the period commencing April 1, 2000 and ending March 31, 2001, the Company and each of its 5 4 Subsidiaries shall not expend cash in connection with the Company's or any Subsidiary's international operations that in the aggregate exceeds $15,000,000, net of any cash provided during such period by such international operations. 7.9.A.3. On and after October 1, 1999, the Company and each of its Subsidiaries shall not expend cash in connection with the Company's or any Subsidiary's timber operations that in the aggregate exceeds $3,000,000, net of any cash provided during such period by such timber operations. 7.9.A.4. For purposes of this Section 7.9.A, references to international operations shall not include any operations of the Company's Core Mutual Fund Subsidiaries and any Subsidiaries of such Core Mutual Fund Subsidiaries." F. Amendment to Exhibit 2.1. Exhibit 2.1 of the Note Agreement is deleted in its entirety and replaced with Exhibit A hereto. G. Amendment to Exhibit 9.1.12. Exhibit 9.1.12 of the Note Agreement, entitled "Officers of the Company," is deleted in its entirety and replaced with Exhibit B hereto. Section 2. AMENDMENT OF OUTSTANDING NOTE. Subject to this Supplemental Agreement becoming effective, the text of the outstanding Note (other than the date, the name of the payee and the principal amount, which are unchanged), is amended pursuant to Section 11.1 of the Note Agreement, to read as provided in Exhibit A to this Supplemental Agreement. Section 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to you as follows: A. Organization, Authorization, Etc. The Company and each of its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the State of its organization, and has all requisite power and authority to execute, deliver and perform its obligations under the Note Agreement as amended by this Supplemental Agreement. The execution, delivery and performance of this Supplemental Agreement has been duly authorized by all necessary corporate and, if required, stockholder action on the part of the Company and each Subsidiary Guarantor, as applicable. This Supplemental Agreement is a legal, valid and binding obligation of the Company and the Subsidiary Guarantors, as applicable, enforceable against the Company or such Subsidiary Guarantors in accordance with its terms, except as enforceability may be limited by bankruptcy, 6 5 insolvency, reorganization, fraudulent transfer, moratorium or other similar laws relating to or affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). B. Compliance with Laws, Other Instruments, Etc. The execution, delivery and performance by the Company or the Subsidiary Guarantors of this Supplemental Agreement does not and will not (A) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary under any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (B) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary or (C) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary. C. Governmental Authorizations, Etc. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company or any Subsidiary Guarantor of this Supplemental Agreement. D. No Default, etc. No Event of Default or Default has occurred and is continuing, and neither the Company nor any Core Mutual Fund Subsidiary is in default (whether or not waived) in the performance or observance of any of the terms, covenants or conditions contained in any instrument evidencing any Indebtedness and there is no pending request by the Company (except pursuant to this Supplemental Agreement) or any such Subsidiary for any amendment or waiver in respect of any contemplated or possible default with respect to such Indebtedness and no event has occurred and is continuing which, with notice or lapse of time or both, would become such a default. E. No Undisclosed Fees. The Company has not, directly or indirectly, other than with respect to the payment of consideration disclosed to the Noteholders, paid or caused to be paid any consideration (as supplemental or additional interest, a fee or otherwise) to any party to the Bank Credit Facility in order to induce such party to enter into an agreement 7 6 substantially similar to this Supplemental Agreement, nor has the Company agreed to made any such payment. Section 4. REPRESENTATION OF THE NOTEHOLDER. You represent to the Company that you are the beneficial owner of Notes in an aggregate principal amount of $20,000,000. Section 5. EFFECTIVENESS OF THIS SUPPLEMENTAL AGREEMENT. This Supplemental Agreement shall become effective on the date (the "Effective Date") on which all of the following conditions precedent shall have been satisfied: A. Proceedings. All proceedings taken by the Company and the Subsidiary Guarantors in connection with the transactions contemplated hereby and all documents and papers incident thereto shall be satisfactory to you, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents and papers, all in form and substance satisfactory to you, as you or they may reasonably request in connection therewith. B. Representations and Warranties. The representations and warranties of the Company contained in Section 3 of this Supplemental Agreement shall be true on and as of the Effective Date as though such representations and warranties had been made on and as of the Effective Date, and you shall have received a certificate of a senior financial officer of the Company, dated the Effective Date, to such effect. C. Opinion of Counsel for the Company. You shall have received an opinion in form and substance satisfactory to you, dated the date of this Supplemental Agreement, from Robert P. Nault, General Counsel for the Company, concerning the due authorization, execution, delivery and performance of this Supplemental Agreement and such other matters incident to the transactions contemplated hereby as you may reasonably request. D. Cash Flow Forecasts. The Company shall have provided monthly cash flow forecasts for the period commencing October 1, 1999 and ending June 30, 2000. E. Payment of Fees. The Company shall have paid you an amendment fee equal to 0.50% of the unpaid principal amount of the Notes and an administrative fee of $36,000. The Company shall have also paid the fees and disbursements of your special counsel as contemplated by Section 8 of this Supplemental Agreement. Section 6. CONDITION SUBSEQUENT. You agree to release Pioneer Management (Ireland) Limited from the Guarantee subject 8 7 to the condition subsequent that the Company shall have obtained from the lenders party to the Bank Credit Facility within thirty days of the Effective Date, as defined herein, documentation sufficient to release Pioneer Management (Ireland) Limited as guarantor under the Bank Credit Facility. You agree that this release is effective as of January 1, 1999. Section 7. EXCHANGE OR NOTATION OF NOTES. Prior to any transfer of an outstanding Note you agree that you will either make a notation of the amendment of such Note pursuant to this Supplemental Agreement, or surrender such Note in exchange for a new Note in accordance with Section 12.2 of the Note Agreement. Any Note executed and delivered on or after the Effective Date shall be in the form of Exhibit A hereto. Section 8. EXPENSES. Without limiting the generality of Section 5.8 of the Note Agreement, the Company agrees, whether or not the transactions contemplated hereby are consummated, to pay the reasonable fees and disbursements and other charges of Willkie Farr & Gallagher, your special counsel, for their services rendered in connection with such transactions and with respect to this Supplemental Agreement and any other document delivered pursuant to this Supplemental Agreement and reimburse you for your out-of-pocket expenses in connection with the foregoing. 9 8 Section 9. RATIFICATION. Except as amended hereby, the Note Agreement is in all respects ratified and confirmed and the provisions thereof shall remain in full force and effect, and the Subsidiary Guarantors hereby ratify their obligations thereunder and under the Subsidiary Guarantees to which they are a party. Section 10. COUNTERPARTS. This Supplemental Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 11. GOVERNING LAW. This Supplemental Agreement shall be governed by and construed in accordance with the laws of the State of New York. If you are in agreement with the foregoing, please sign the form of acceptance in the space below provided, whereupon this Supplemental Agreement shall become a binding agreement between you and the Company, with the approval of the Subsidiary Guarantors, subject to becoming effective as hereinabove provided. THE PIONEER GROUP, INC. By:/s/ Eric W. Reckard ---------------------------------- Title: Executive Vice President, Chief Financial Officer and Treasurer 60 State Street Boston, MA 02109-1820 SUBSIDIARY GUARANTORS PIONEER INVESTMENT MANAGEMENT, INC. By:/s/ Eric W. Reckard ---------------------------------- Title: Treasurer 60 State Street Boston, MA 02109-1820 PIONEER MANAGEMENT (IRELAND) LTD. By:/s/ John F. Cogan, Jr. ---------------------------------- Title: Director 60 State Street Boston, MA 02109-1820 10 9 PIONEERING SERVICES CORPORATION By:/s/ Eric W. Reckard ---------------------------------- Title: Treasurer 60 State Street Boston, MA 02109-1820 ACCEPTED THE TRAVELERS INSURANCE COMPANY By: /s/ Pamela Westmoreland ------------------------- Title: Investment Officer 11 EXHIBIT A EXHIBIT 2.1 [FORM OF NOTE] THE PIONEER GROUP, INC. 9.45% Senior Note due 2004 No. R- New York, New York $______________ [Date] PPN:[ ] THE PIONEER GROUP, INC., a Delaware corporation (the "Company"), for value received, hereby promises to pay to ____________________, or registered assigns, the principal sum of ____________________ Dollars (or so much thereof as shall not have been prepaid) on August 15, 2004, and to pay interest (computed on the basis of a 360-day year of twelve 30-day months) on the unpaid principal balance thereof from the date of this Note at the rate of 9.45% per annum, quarterly on February 15, May 15, August 15 and November 15 in each year until such principal sum shall have become due and payable (whether at maturity, at a date fixed for prepayment or by declaration, acceleration or otherwise), and to pay on demand interest (so computed) on any overdue principal and premium, if any, and (to the extent permitted by applicable law) on any overdue interest, at a rate per annum equal to the greater (determined on a daily basis) of (i) 11.45% and (ii) 2% above the rate of interest publicly announced by Citibank, N.A. from time to time at its principal office in The City of New York as its prime or base rate. Payments of principal, premium, if any, and interest shall be made in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts in the manner and to the address designated by the holder hereof and, in the absence of such designation, at said principal office of Citibank, N.A. This Note is one of an issue of Senior Notes of the Company issued pursuant to the Note Agreement dated as of August 14, 1997, as amended by Supplemental Agreement No. 1 dated as of September 30, 1998, Supplemental Agreement No. 2 dated as of September 30, 1998, Supplemental Agreement No. 3 dated as of December 30, 1998, Supplemental Agreement No. 4 dated as of June 30, 1999 and Supplemental Agreement No. 5 dated as of November 11, 1999 (as so amended, the "Note Agreement"), entered into by the Company and certain of its Subsidiaries, as guarantors, with an institutional investor. The holder of this Note is entitled to the 12 benefits of the Note Agreement and is also entitled to the benefits of a certain Intercreditor Agreement referred to therein. The Company may at its election prepay this Note, in whole or in part, and the maturity hereof may be accelerated following an Event of Default, all as provided in the Note Agreement, to which reference is made for the terms and conditions of such provisions as to prepayment and acceleration, including without limitation the payment of a make-whole premium in connection therewith. Upon surrender of this Note for registration of transfer or exchange, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and, at the option of the holder, registered in the name of, the transferee. The Company and any agent of the Company may deem and treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payments of the principal of, premium, if any, and interest hereon and for all other purposes whatsoever, whether or not this Note is overdue, and the Company shall not be affected by any notice to the contrary. As provided in the Note Agreement, this Note shall be governed by and construed in accordance with the law of the State of New York. THE PIONEER GROUP, INC. By_______________________________ Title: 13 EXHIBIT B Exhibit 9.1.12 OFFICERS OF THE COMPANY 1. John F. Cogan, Jr. Chairman of the Board, Chief Executive Officer and President of the Company 2. Eric W. Reckard Executive Vice President, Chief Financial Officer and Treasurer of the Company and Subsidiaries 3. David D. Tripple Executive Vice President of the Company and President of Pioneer Investment Management, Inc. and Pioneer Funds Distributor, Inc. 4. William H. Smith, Jr. Executive Vice President of the Company and Director of Pioneering Services Corporation 5. Roger K. Leonard Managing Director and Chief Executive of Pioneer Goldfields Limited and Managing Director of Teberebie Goldfields Limited EX-10.90 6 AMENDMENT TO FINANCE AGREEMENT 1 Exhibit 10.90 AMENDMENT TO FINANCE AGREEMENT AND LIMITED WAIVER AMENDMENT (the "Amendment"), dated as of December 28, 1999, between CLOSED JOINT-STOCK COMPANY "FOREST-STARMA", (the "Company"), a closed joint-stock company organized and existing under the laws of the Russian Federation, and OVERSEAS PRIVATE INVESTMENT CORPORATION, an agency of the United States of America ("OPIC"). WITNESSETH: WHEREAS, the Company and OPIC are parties to a finance agreement dated as of December 21, 1995, as amended, March 6, 1996, March 26, 1996, May 29, 1996, June 24, 1996 and June 3, 1999 (the "Finance Agreement"); WHEREAS, all capitalized terms used herein and not otherwise defined herein shall have their respective meanings set forth in the Finance Agreement; WHEREAS, PFI owns 100% of the shares of capital stock of the Company and wishes to transfer all of this stock to PFI's wholly owned Delaware subsidiary, "Pioneer Forest, L.L.C." ("PFLLC"), such that as a result of this transaction (the "Share Transfer") PFLLC will own 100% of the capital stock of the Company and PFI will no longer be shareholder of the Company; and WHEREAS, in order that PFI may proceed with the Share Transfer, the Company, PGI and PFI have requested that OPIC agree with the Company to amend certain provisions of the Finance Agreement and to waive certain other provisions of the Finance Agreement, in accordance with Section 8.06 of the Finance Agreement; and OPIC is willing to do so. NOW THEREFORE, in consideration of the foregoing and of the mutual covenants, provisions and undertakings herein and in the Finance Agreement and for other good and valuable consideration, the receipt and and adequacy of which is hereby acknowledged by the parties hereto, OPIC and the Company agree as follows: 1. Amendments. (a) The following definition is hereby added after the definition of "PFI" in Section 1.01 of the Finance Agreement: "PFLLC" means Pioneer Forest, L.L.C., a Delaware limited liability company. 2 (b) Paragraph (m) of Section 7.01 of the Finance Agreement is hereby revised to read in its entirety as follows: (m) The U.S. Sponsor ceases to hold 100% of the legal and beneficial title to the equity of PFI; or PFI ceases to hold 100% of the legal and beneficial title to the equity of PFLLC; or prior to the Share Transfer PFI ceases to own 100% of the legal and beneficial title to the equity of the Company; or following the Share Transfer PFLLC ceases to hold 100% of the equity of the Company or the U.S. Sponsor ceases to retain management control of the Company; or 2. Waiver. The Company has requested that OPIC waive any Event of Default under paragraphs (i) or (m) of Section 7.01 of the Finance Agreement arising out of the acquisition of equity of the Company by PFLLC in connection with the Share Transfer as set forth in Exhibit A annexed hereto and made a part hereof. OPIC hereby waives any such Events of Default; provided, however, that the waiver contained in paragraph (a) of this Section 2 shall not be effective unless and until OPIC shall have received one or more of an amended, restated or additional Contract of Pledge of Shares, in form and substance satisfactory to OPIC, and an opinion, in form and substance satisfactory to OPIC, from counsel satisfactory to OPIC, with respect to OPIC's security interest in shares of capital stock of the Company pledged to OPIC. 3. Representations and Warranties. The Company represents and warrants that : (a) This Amendment constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. (b) All representations and warranties made by the Company in the Finance Agreement are true and accurate as of the date hereof, except that the record and beneficial ownership of the capital stock of the Company set forth in Section 3.04 of the Finance Agreement has changed, or will change, as a result of the Share Transfer as set forth in Exhibit A annexed hereto. 4. Ratification and Confirmation. As amended hereby, all the terms and provisions of the Finance Agreement are hereby ratified and confirmed in all respects and shall apply in full force and effect. 5. No Waiver. The Company acknowledges and agrees that except as expressly provided in Section 2 of this Amendment, OPIC, in executing and delivering this Amendment, has not and shall not be deemed to have waived, released or modified any right or power that it may have under the Finance Agreement, as amended herein, to claim that any Event of Default has occurred or is occurring, 3 and the execution and delivery of this Amendment shall not be deemed a waiver by OPIC of any such Event of Default. 6. Effective Date. This Amendment shall be effective as of the date hereof, except as otherwise expressly provided herein. 7. Counterparts. This Amendment may be executed in counterparts, each of which when so executed and delivered shall be deemed an original and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their authorized representatives as of the day and year first above written. CLOSED JOINT-STOCK COMPANY "FOREST-STARMA" By: /s/ Donald H. Hunter ---------------------------------------- Donald H. Hunter On the basis of power of attorney No. 73, Dated December 3, 1999 By: /s/ Catherine V. Mannick ---------------------------------------- Catherine V. Mannick On the basis of power of attorney No. 74, Dated December 3, 1999 By: /s/ Inna Verdini ---------------------------------------- Inna Verdini On the basis of power of attorney No. 72, Dated December 3, 1999 OVERSEAS PRIVATE INVESTMENT CORPORATION By: /s/ Steven S. Smith ---------------------------------------- Its: Investment Officer EX-10.91 7 AGREEMENT WITH RESPECT TO PROJECT COMPLETION 1 Exhibit 10.91 AGREEMENT WITH RESPECT TO PROJECT COMPLETION AGREEMENT AGREEMENT (the "Agreement"), dated as of December 28, 1999, among CLOSED JOINT-STOCK COMPANY "FOREST-STARMA", a closed joint stock company, organized and existing under the legislation of the Russian Federation (the "Company"), THE PIONEER GROUP, INC., a corporation organized and existing under the laws of the state of Delaware (the "U.S. Sponsor"), PIONEER FOREST, INC., a corporation organized and existing under the laws of the state of Delaware and a wholly owned subsidiary of the U.S. Sponsor (the "U.S. Sponsor Subsidiary"), PIONEER FOREST, L.L.C., a limited liability company organized and existing under the laws of the state of Delaware and a wholly owned subsidiary of the U.S. Sponsor Subsidiary ("PFLLC"), and OVERSEAS PRIVATE INVESTMENT CORPORATION, an agency of the United States of America ("OPIC"). WITNESSETH: WHEREAS, the Company, the U.S. Sponsor, International Joint Stock Company "Starma Holding" (the "Russian Sponsor") and OPIC are parties to a Project Completion Agreement, dated as of December 21, 1995 (the "Project Completion Agreement"); WHEREAS, the Company, the U.S. Sponsor, the U.S. Sponsor Subsidiary and OPIC entered into an Agreement with respect to Project Completion Agreement, dated as of June 3, 1999 (the "APCA"), pursuant to which the U.S. Sponsor Subsidiary agreed to be bound by, and jointly and severally responsible for, all obligations of the U.S. Sponsor under the terms and conditions of the Project Completion Agreement; WHEREAS, all capitalized terms used herein and not otherwise defined herein shall have their respective meanings set forth in the Finance Agreement, dated as of December 21, 1995, as amended to and including the date hereof, between the Company and OPIC, the Project Completion Agreement and the APCA; and WHEREAS, as a result of the Share Transfer, the PFLLC will own 100 % of the shares of capital stock of the Company and the U.S. Sponsor Subsidiary will no longer hold any capital stock of the Company. NOW, THEREFORE, the parties agree as follows: 1. Indemnity. The U.S. Sponsor hereby indemnifies and holds harmless the Indemnified Persons from and against any and all losses, liabilities, obligations, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever (Losses) that may be imposed on, incurred by, or 2 2 asserted against any Indemnified Person in any way relating to the Contract of Pledge of Shares between PFLLC and OPIC or the Share Transfer, if such Losses would not have occurred had the U.S. Sponsor Subsidiary not transferred its shares of the Company, directly or indirectly, to PFLLC in connection with the Share Transfer. In particular, but without limitation, this indemnity extends to any Losses incurred by an Indemnified Person as a result of the bankruptcy of PFLLC or due to the existence of any contract for pledge of shares in the Company which PFLLC may have entered into, and having priority to, the contract for the Pledge of Shares with OPIC." 2. Representations and Warranties. (a) Each of the Company, the U.S. Sponsor, the U.S. Sponsor Subsidiary and PFLLC represents and warrants to OPIC that this Agreement constitutes a legal, valid and binding obligation of it, enforceable against it in accordance with its terms. (b) Each of the U.S. Sponsor, the U.S. Sponsor Subsidiary and PFLLC represents and warrants to OPIC, jointly and severally that: (i) (x) as of the effective date hereof the U.S. Sponsor Subsidiary owns of record and beneficially, and the U.S. Sponsor owns beneficially, 100%, and (y) upon completion of the Share Transfer, the U.S. Sponsor Subsidiary and the U.S. Sponsor will own beneficially, and PFLLC will own of record and beneficially, 100% of the issued and outstanding shares of capital stock of the Company; (ii) as of the effective date hereof the U.S. Sponsor Subsidiary owns, and upon completion of the Share Transfer will own, of record and beneficially all of the issued and outstanding shares of capital stock of PFLLC; (iii) as of the date hereof the U.S. Sponsor owns, and upon completion of the Share Transfer will own, of record and beneficially all of the issued and outstanding shares of the capital stock of the U.S. Sponsor Subsidiary; and (iv) as of the date hereof each of the representation and warranties of the Sponsors in paragraphs (b) through (j) of Section 8.A of the Project Completion Agreement are true and accurate. 3. Undertakings of the U.S. Sponsor Subsidiary and PFLLC. PFLLC hereby agrees to be bound by, and jointly and severally responsible and liable for all obligations and liabilities of the U.S. Sponsor and the U.S. Sponsor Subsidiary under, the terms of Project Completion Agreement and the APCA and to appoint an agent for service of process satisfactory to OPIC in connection with this undertaking in compliance with the terms of Section 14(b) of the Project Completion Agreement and give written notice thereof to OPIC within 30 days after the date hereof. Notices to PFLLC may be given to it at the following address: 3 3 60 State Street Boston, MA 02109 Tel: 617-742-7825 Fax: 617-422-4286 Attention: President 4. Ratification and Confirmation. All the terms and provisions of the Project Completion Agreement and the APCA are hereby ratified and confirmed by the U.S. Sponsor, the U.S. Sponsor Subsidiary and PFLLC and shall apply in full force and effect. 5. Effective Date. This Agreement shall be effective as of the date hereof. 6. Counterparts. This Agreement may be executed in counterparts, each of which when so executed and delivered shall be deemed an original and all of which shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their authorized representatives as of the day and year first above written. CLOSED JOINT-STOCK COMPANY "FOREST-STARMA" By: /s/ Donald H. Hunter ------------------------ Donald H. Hunter On the basis of power of attorney No. 73, Dated December 3, 1999 By: /s/ Catherine V. Mannick ------------------------ Catherine V. Mannick On the basis of power of attorney No. 74, Dated December 3, 1999 By: /s/ Inna Verdini ------------------------ Inna Verdini On the basis of power of attorney No. 72, Dated December 3, 1999 4 4 THE PIONEER GROUP, INC. By: /s/ Stephen G. Kasnet ------------------------ Its: Executive Vice President PIONEER FOREST, INC. By: /s/ Stephen G. Kasnet ------------------------ Its: President PIONEER FOREST, L.L.C. By: /s/ Stephen G. Kasnet ------------------------ Its: President OVERSEAS PRIVATE INVESTMENT CORPORATION By: /s/ Steven S. Smith ------------------------ Its: Investment Officer EX-10.92 8 CONTRACT OF PLEDGE OF SHARES 1 Exhibit 10.92 DECEMBER 28, 1999 PIONEER FOREST, L.L.C. OVERSEAS PRIVATE INVESTMENT CORPORATION ======================================== CONTRACT OF PLEDGE OF SHARES ======================================== 2 CONTENTS
CLAUSE PAGE 1. INTERPRETATION. ............................................... 1 Definitions ................................................... 1 Interpretation ................................................ 2 Headings ...................................................... 3 2. ACKNOWLEDGEMENT OF INDEBTEDNESS OF THE COMPANY ................ 3 3. PLEDGE ........................................................ 3 Pledge ........................................................ 3 Assurance ..................................................... 3 4. PLEDGE IN ACCORDANCE WITH THIS CONTRACT AND OTHER RIGHTS ...... 4 5. DUTIES OF THE PLEDGOR ......................................... 4 Duties ........................................................ 4 Warranty ...................................................... 6 Rights ........................................................ 6 6. RIGHTS OF OPIC ................................................ 7 Failure to Perform Conditions of Finance Agreement ............ 7 Exercise of Rights ............................................ 7 Levy of execution ............................................. 8 7. APPLICATION OF PROCEEDS ....................................... 8 Accounts ...................................................... 8 8. PROTECTION OF RIGHTS OF OPIC .................................. 9 9. ADDITIONAL ASSURANCES AND POWER OF ATTORNEY ................... 9 Additional Assurances ......................................... 9 Powers of Attorney ............................................ 9 10. OBLIGATIONS IN ACCORDANCE WITH THIS CONTRACT SHALL NOT LEAD TO MERGER OR COMBINING OF RIGHTS OF PLEDGE .................... 9 11. CHANGE OF NAME ................................................ 10 12. AVOIDANCE OF PAYMENTS ......................................... 10 13. NOTIFICATIONS AND DEMANDS ..................................... 10 14. CONCLUDING PROVISIONS ......................................... 10
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CLAUSE PAGE Evidence of Indebtedness ..................................... 10 Supplementary Nature of Rights; Waiver of Right .............. 11 Consequences of Invalidity of Any Provision of this Contract ..................................................... 11 15. APPLICABLE LAW .................................................. 11 16. ARBITRATION AND JURISDICTION .................................... 11 Arbitration; Rules; Venue; Language .......................... 11 Arbitrators; Selection; Qualification ....................... 12 Law .......................................................... 12 Statements of Claim and Defence; Representation; Proceedings.. 12 Awards ....................................................... 13 Costs, Fees and Expenses ..................................... 13 No Waiver .................................................... 13 17. COUNTERPARTS .................................................... 13 ANNEX 1 ...................................................... 15 ANNEX 2 ...................................................... 16 ANNEX 3 ...................................................... 17
4 CONTRACT OF PLEDGE OF SHARES Concluded on December 28, 1999 between: PIONEER FOREST, L.L.C., a limited liability company organised and existing under the laws of the State of Delaware, USA (hereinafter the PLEDGOR); and OVERSEAS PRIVATE INVESTMENT CORPORATION (hereinafter called OPIC). WHEREAS, (A) a Contract of Pledge of Shares in the Company was concluded on 3 June 1999 between OPIC and the corporation "Pioneer Forest, Inc." (USA) (hereinafter the CORPORATION); and (B) the Corporation is the owner of all (100%) of the shares in the Company and intends to transfer all of the shares in the Company to the Pledgor; and (C) the rights of pledge of OPIC set forth in the Contract of Pledge of Shares in the Company of 3 June 1999 shall remain in effect after the Transfer of Shares from the Corporation to the Pledgor in accordance with Article 353 of the Civil Code of the Russian Federation. The Pledgor and OPIC have come to the following agreement: INTERPRETATION DEFINITIONS 1.1 For the purposes of this Contract the terms defined in the Finance Agreement shall have the same meaning as if they had been used in this Contract and the following terms shall have the following meaning unless the context and content of this Contract require otherwise: ACCELERATION EVENT means any one of the events specified in Section 7.1 of the Finance Agreement and any event which, with lapse of time or notice and lapse of time, may become such an event; COMPANY means Closed Joint-Stock Company "FOREST-STARMA", a closed joint-stock company (registered by Decree No. 349 of the Head of Administration of Khabarovsky Krai dated 21 July 1992), registered and operating in conformity with the legislation of the Russian Federation, whose legal address is at ul. Chekhova, d.l, apt.3, Vanino Settlement, Khabarovsk Territory, Russian Federation 682860; FINANCE AGREEMENT means the Finance Agreement of 21 December 1995 between the Company and OPIC and any promissory note drawn up on the basis of the Finance 5 Agreement, including in each instance any changes and additions thereto, including any changes in accordance with which obligations of the Company grow or increase or are affected in any other way; MEANS OF SECURING OBLIGATIONS means any method of securing obligations by way of mortgage, hypotheque, pledge, pawn, possessory lien, right of set-off of obligations or any other way in accordance with the law of any State or the agreement of the parties; PLEDGE means the pledge created by this Contract; PLEDGED SHARES means all of the shares, which the Corporation will transfer to the Pledgor in the future, listed and described in Annex 1 to this Contract, all and any of the rights under or in relation to the shares, listed and described in Annex 1 to this Contract, and all other shares of the Company, issued or which are to be issued by the Company and which the Pledgor will acquire or has the right to acquire in its ownership; TRANSFER OF SHARES means a transaction between the Corporation and the Pledgor for the transfer to the Pledgor of all the Pledged Shares owned by the Corporation. RIGHTS means with respect to OPIC its powers, discretions, and rights in accordance with this Contract, the Finance Agreement and Russian law; SECURED AMOUNTS means: (a) money and other obligations which the Company is obliged to pay or to fulfil under the Finance Agreement and other documents related to the Finance Agreement as acknowledged by the Pledgor under Section 2 below; and (b) the obligations of the Pledgor to OPIC under this Contract and/or any other Financing Documents to which the Pledgor is party, and where the context so requires references to Secured Amounts shall include references to any such obligations. INTERPRETATION 1.2 In this Contract and Annexes thereto in all instances except those when the context requires otherwise: (a) references and/or mentions of OPIC, the Pledgor and the Company include respectively references and/or mentions of their legal successors and persons to whom by legal means the rights and duties of OPIC, the Pledgor and the Company have passed; 6 (b) references to a document shall include any document possessing legal force (including this Contract), any securities, statements, certificates, notices, or any other documents; in so doing the references to a document shall mean those references to a document or any provision thereof in changed, supplemented, or otherwise renewed form, or substituted by consent of the parties (in whole or in part); (c) references to any law or normative act shall mean references to the law or normative act in changed or supplemented form or to a newly adopted law or normative act replacing a previous law or normative act; and (d) references to any specific Section, paragraph, or Annex shall mean references to the specific Section, paragraph of, or Annex to this Contract. HEADINGS 1.3 Headings in this Contract have been included exclusively for the convenience of work with the text and shall not affect the interpretation of the provisions of this Contract. ACKNOWLEDGEMENT OF INDEBTEDNESS OF THE COMPANY 2. The Pledgor acknowledges (without thereby becoming a guarantor or surety in respect thereof) that the Company has agreed to repay to OPIC the principal debt comprising $9,300,000 (nine million three hundred thousand) US dollars (or such lesser amount as may be outstanding from time to time) and interest thereon by 15 December 2003 in accordance with the Finance Agreement; to fulfil all financial, as well as all other, obligations with respect to OPIC which periodically are subject to performance or which arise (either before or after the demand of OPIC for payment) on the basis of the Finance Agreement and/or on the basis of other Financing Documents to which the Company and OPIC are parties. PLEDGE PLEDGE 3.1 As a means of securing obligations of the Company to pay the Secured Amounts and to secure the Pledgor's obligations in favour of OPIC on the basis of this Contract and/or other agreements related to the Finance Agreement, the Pledgor pledges the Pledged Shares and all the rights under or in relation to the Pledged Shares to OPIC in accordance with the Law of Russian Federation "On Pledge" No. 2872-1 of 29 May 1992 and the Civil Code of the Russian Federation of 21 October 1994. ASSURANCE 3.2 The Pledgor assures OPIC and confirms that the Pledged Shares are not the 7 subject of pledge to the benefit of other persons and no demands whatever have been made by anyone in the respect of the Pledged Shares other than OPIC and that OPIC becomes the exclusive pledgeholder of first ranking with respect to the Pledged Shares. 3.3 The Pledgor assures OPIC and confirms that it intends to acquire full ownership rights to all of the Pledged Shares. PLEDGE IN ACCORDANCE WITH THIS CONTRACT AND OTHER RIGHTS 4. This Pledge shall be without prejudice and in addition to any other Means of Securing Obligations whatsoever which may be held by OPIC or granted to OPIC by the Pledgor or the Company or any person for or in respect of the whole or part of the Secured Amounts; and the charges, covenants and provisions contained herein shall remain in force as continuing security to OPIC until the Secured Amounts have been paid in full. When the Secured Amounts have been repaid in full, and subject to OPIC being satisfied that no payment received by OPIC may be avoided or adjusted in the circumstances described in Section 12 hereof, OPIC shall upon the request of the Pledgor issue an absolute and unconditional release of this Pledge. DUTIES OF THE PLEDGOR DUTIES 5.1 Until the Secured Amounts have been paid in full and the Company has been released by OPIC from its related obligations, the Pledgor shall be obliged: (a) not to use the Pledged Shares as the subject of securing other obligations, nor to create, or permit to be created, a pledge (irrespective of the ranking thereof), a trust, or any other right of demand with respect to or in connection with the Pledged Shares, whether by virtue of law or any other legally binding act or by virtue of a contract to the benefit of anyone whatever except for OPIC; (b) without receiving the prior written consent of OPIC, not to transfer, sell, or transfer rights or otherwise alienate, or terminate its possession or management, or perform actions leading to or which might lead to the transfer, sale or transfer of rights or alienation or termination of possession or management of the Pledged Shares by the Pledgor or to the termination or change of any rights of the Pledgor to the Pledged Shares in any form; (c) to make payment without delay and to ensure the payment of all taxes, duties, obligatory payments for authorisations, rights and licences granted, registration payments and duties, insurance payments, and also any other payments calculated in connection with or relating in any way to the Pledged Shares and/or to this contract, and at first demand to provide certificates and evidence to OPIC of all the said payments being made; 8 (d) immediately communicate to OPIC in writing any and all notices and information received by the Pledgor or the Company and affecting: (i) any proposals concerning the obligatory acquisition by anyone of all or any of the Pledged Shares, or proposals concerning the obligatory transfer to anyone of the right of ownership to all or any of the Pledged Shares; (ii) any proposals concerning the obligatory termination or restrictions of any nature on payment of dividends on all or any of the Pledged Shares; (iii) any court proceeding (or any other proceeding or bringing of suits or claims which might lead to a court proceeding) with respect to all or any of the Pledged Shares; and exclusively at the expense of the Pledgor to take measures and undertake such actions with respect to the aforesaid proposals, applications, court proceedings, other proceeding, suits, claims and the like which OPIC may, at its discretion, reasonably demand of the Pledgor; (e) except for instances of receiving the prior consent of OPIC, which will not be refused without reasonable grounds therefor, not to conduct negotiations nor to settle any suits or claims to receive compensation pertaining to the Pledged Shares (including in accordance with any regulatory acts and in all other instances), or any suits or claims with regard to any insurance agreements relative to all or any part or parts of the Pledged Shares, or any other material compensation or insurance payments pertaining thereto; (f) to fulfil in a timely way all obligations which by virtue of law have or might have preference to the obligations under this Contract; (g) to maintain a record of this Pledge as required by Section 18 of the Law of the Russian Federation "On Pledge" No. 2872-1 of 29 May 1992 and allow third persons to be aware of the existence of this Pledge in accordance with applicable law; (h) pay to OPIC, upon demand, the amount of all expenses which it may incur in, about or with a view to registering or enforcing this Pledge or otherwise in connection with this Pledge; (i) promptly pay all calls, instalments and other payments which may be made or become due in respect of the Pledged Shares; (j) forthwith sign, seal, deliver and complete all transfers, proxies, mandates, assignments and documents and do all acts and things which OPIC may, in its absolute discretion, at any time and from time to time specify: 9 (i) for enabling or assisting OPIC to improve its rights to and security over the Pledged Shares; (ii) to exercise (or enable its nominee or nominees to exercise) any rights or powers attaching to the Pledged Shares; (iii) (in accordance with Section 6 below) to sell or dispose of the Pledged Shares; or (iv) otherwise to enforce any of the rights of OPIC under or in connection with this Pledge; (k) forward to OPIC all material notices, reports, accounts, circulars and other documents relating to the Pledged Shares or which are sent to the holders of the Pledged Shares as soon as they are received; (l) after an Acceleration Event has occurred and OPIC has sent to the Company a demand for payment of the Secured Amounts (or part thereof) take such action as OPIC may in its absolute discretion direct, in respect of any proposed compromise, arrangement, capital reorganisation, exchange, repayment or take-over offer affecting or in respect of the Pledged Shares or any of them or any proposal made for varying or abrogating any rights attaching to the Pledged Shares or any of them; (m) indemnify OPIC (and any of their nominees) on demand from and against any claims by third parties which any of them may incur as holders of the Pledged Shares or any interest in the Pledged Shares while the Pledged Shares are held as security hereunder and resulting from any claim which arose while held as security hereunder; and (n) promptly on execution of this Contract to give notice to the Company in the form set out in Annex 2 to this Contract, and procure that a confirmation in the form set out in Annex 3 is delivered to OPIC. WARRANTY 5.2 The Pledgor warrants that it has complied with and will comply with all the necessary registration requirements in relation to the registration and issuance of the Pledged Shares. RIGHTS 5.3 Notwithstanding anything expressed or implied in Section 5.1 or elsewhere in this Contract, until any of the events or circumstances specified in Section 6 of the Finance Agreement occur and OPIC has sent to the Company a demand for payment of the Secured Amounts (or part thereof), the Pledgor shall be entitled to exercise all 10 voting and other rights and powers (by statute or otherwise) attached to or conferred on the Pledged Shares and to receive and retain all dividends and other distributions paid or distributed in respect of the Pledged Shares. RIGHTS OF OPIC FAILURE TO PERFORM CONDITIONS OF FINANCE AGREEMENT 6.1 If an Acceleration Event occurs, OPIC shall have the right (but in no event is it obliged to take nor does it bear responsibility for taking the measures enumerated below and without prejudice to any rights of OPIC whatever) in the name of the Company or otherwise to ensure the fulfilment of the obligations of the Company and to take such measures which OPIC in its discretion considers appropriate to rectify the existing situation. EXERCISE OF RIGHTS 6.2 If an Acceleration Event occurs, and OPIC has sent to the Company a demand for payment of the Secured Amounts (or part thereof), then: (a) all and any dividends and other distributions accruing on or deriving from the Pledged Shares which are thereafter paid or distributed (notwithstanding that they may have accrued in respect of an earlier period) shall: (i) if received by the Pledgor (or any nominee of the Pledgor) be held on trust and forthwith paid and transferred to OPIC; and (ii) when and if received by OPIC (or their nominee) shall form part of the Pledged Shares and be held by OPIC on the terms of this Pledge as additional security (and, if cash, be paid into a cash collateral deposit account and may be applied by OPIC at any time and from time to time thereafter in or towards the discharge of the Secured Amounts as OPIC thinks fit); (b) OPIC may from time to time exercise (and may from time to time direct the exercise of) all voting and other rights and powers (by statute or otherwise) attached to or conferred on the Pledged Shares in such manner as OPIC (in their absolute discretion) thinks fit and the Pledgor shall, and shall procure that any nominee of the Pledgor shall, comply with any such directions of OPIC; (c) the Pledgor shall (and shall procure that any nominee of the Pledgor shall) forthwith agree to accept instruction or order for and to attend all or any meetings of the holders of the Pledged Shares, to appoint proxies and exercise all voting and other rights and powers which may at any time be exercisable by the holders of the Pledged Shares as OPIC may from time to time direct. 11 LEVY OF EXECUTION 6.3 If an Acceleration Event occurs and OPIC has sent to the Company a demand for payment of the Secured Amounts (or part thereof), then OPIC may levy execution on the Pledged Shares in accordance with the procedure established by Russian law. To the extent that the parties are free to choose the tribunal to commence execution proceedings, the parties choose arbitration in accordance with Section 16. APPLICATION OF PROCEEDS 7.1 All cash assets received as a result of the exercise of the rights of OPIC pursuant to this Contract and all other cash assets received by OPIC in connection with this Pledge after handing over to the Company a demand for payment of the Secured Amounts (taking into account the need to satisfy other demands which might have priority ahead of the obligations under this Contract) shall be applied to make payments in the following order: (a) the amount of all expenses, costs, demands for payment, obligations, and the like paid, incurred or presented for payment to OPIC and which are Secured Amounts; (b) all other amounts comprising Secured Amounts, in the order determined by OPIC; (c) payments to the benefit of the Company if OPIC is not required to make any payments in favour of other persons in accordance with the laws of any State. ACCOUNTS 7.2 Notwithstanding Section 7.1, all and any cash assets coming to OPIC from the Pledgor or the Company or from any other person making payments with regard to obligations or in connection with obligations of the Company or the Pledgor or otherwise relating to the realisation or the exercise of the rights with respect to the Pledged Shares in accordance with this Contract may be credited by OPIC as a whole or in any proportion at the discretion of OPIC to any account or item of account or may be applied by OPIC to cover obligations of the Company and the Pledgor with regard to any other transactions and, without limitation, OPIC may at its discretion at any time insofar as all Secured Amounts have not been paid to OPIC credit in a separate or a suspense account as collateral security any cash assets received by OPIC from the Company or the Pledgor or other persons in connection with this Contract for so long and in the manner as OPIC considers acceptable, and such may be applied by OPIC at any time and from time to time thereafter in or towards discharge of the Secured Amounts as OPIC thinks fit. 12 PROTECTION OF RIGHTS OF OPIC 8. OPIC shall not bear responsibility for any loss, causing of damage or harm which is the result of the exercise, or the intention to exercise, or the failure to exercise, or the impossibility to exercise, any of the respective Rights. ADDITIONAL ASSURANCES AND POWER OF ATTORNEY ADDITIONAL ASSURANCES 9.1 The Pledgor agrees that at any time (and for the purposes designated in paragraph (a) below even if OPIC has not sent demands to make payment of the Secured Amounts or the performance of other obligations) at the first demand of OPIC, at the expense of the Company, to sign any legally binding document or to undertake legally binding actions which: (a) OPIC may direct for the purposes of ensuring the validity, legality, and ranking of the Pledge or any other Means of Securing Obligations received or which should have been received in accordance with this Contract; or (b) OPIC may direct and which are reasonably necessary in the opinion of OPIC in order to exercise any of the Rights. POWERS OF ATTORNEY 9.2 For the purposes of securing the Rights of OPIC to the Pledged Sharesand the performance of obligations and duties of the Pledgor to OPIC both under this Contract and others, the Pledgor shall be obliged upon the first demand of OPIC to appoint (by a power of attorney, the form and content of which must be approved by OPIC) OPIC to be the representative (possessing the full right to appoint deputies and the right to further delegate any powers, including the right to transfer powers to a person appointed by a deputy, to make further appointments, in all instances with respect to all or part of the Pledged Shares) of the Pledgor (the Pledgor shall be obliged also to renew such power of attorney or powers of attorney when this is necessary in order to ensure their validity) and in the name of the Pledgor or otherwise to sign legally binding documents or to perform actions having legally binding consequences which OPIC (or their deputies or other empowered persons) considers, in its opinion, to be appropriate in connection with the exercise of any rights of OPIC or which the Pledgor is obliged to create for the benefit of OPIC on the basis of this Contract or other related agreements. No such power of attorney shall extend to or include any of the rights pertaining to the Pledgor under Section 5.3. OBLIGATIONS IN ACCORDANCE WITH THIS CONTRACT SHALL NOT LEAD TO MERGER OR COMBINING OF RIGHTS OF PLEDGE 10. The rights contained in this Contract or created in accordance with this Contract 13 shall serve as an addition (and in no event either excluding or affecting) to other rights of pledge, the right to levy execution, the right to set-off counter-obligations, the right to combine obligations or any other rights of OPIC which it may acquire in the future (or shall have in addition to the Pledge arising under this Contract, or other rights in relation to this Contract) with respect to the Company or the Pledgor or any other person in connection with the Secured Amounts. OPIC shall have the right at any time to create, waive, exercise, change, exchange or refrain from the registration or other analogous procedures or the creation of any other Means of Securing Obligations without affecting in so doing or limiting the rights under this Contract. OPIC does not and shall not bear responsibility to the Pledgor for any damage which is the result of the failure of OPIC to take measures with regard to the use of or failure to use its rights or the procedure or means to exercise them or the avoidance of or refraining from the exercise of any of its rights as pledgeholder. CHANGE OF NAME 11. This Contract shall remain in force and its performance may be secured irrespective of whether the name, composition, form, or status (or legal status) of OPIC, the Company or the Pledgor changes, whether there occurs the merger or association in any form of OPIC, the Company or the Pledgor with another person or enterprise irrespective of its form, whether any changes occur in the organisation of the Pledgor, the Company or any of their participants (stockholders). AVOIDANCE OF PAYMENTS 12. If any payment is avoided or changed in accordance with norms of law, including any act relating to the regulation of insolvency (bankruptcy), no release from obligations or settlement of obligations or claims performed by OPIC on the basis of such payment shall affect in any way the rights of OPIC to receive the Secured Amounts from the Company or the Pledgor or to exercise its rights under this Contract in order to receive all of the Secured Amounts. NOTIFICATIONS AND DEMANDS 13. The provisions of Section 8.1 of the Finance Agreement shall be an integral part of this Contract and shall be subject to application to this Contract mutatis mutandis. CONCLUDING PROVISIONS EVIDENCE OF INDEBTEDNESS 14.1 In any petition to sue, examination, or claim relating to this Contract or to the rights of pledge under this Contract, a statement concerning the need to perform any payment to the benefit of OPIC, or a payment of all, part, or parts of the Secured Amounts, which is confirmed by personnel of OPIC is, excluding instances of obvious or incontestable mistakes, prima facie evidence of the Company's indebtedness in the 14 amount designated therein. SUPPLEMENTARY NATURE OF RIGHTS; WAIVER OF RIGHT 14.2 The rights and powers which this Contract grants to OPIC shall supplement one another, may be exercised as often as OPIC wishes, and supplement their respective rights in accordance with general norms of law (irrespective of whether they arise under this Contract or in accordance with law and subordinate acts). OPIC may waive such rights; however such waiver must be expressed (and not implied) and be in writing and, in particular, any failure to use or impossibility of use of any rights, or delay in the use of rights, shall not mean and may not be construed as a waiver of any of such rights; any improper or partial exercise of such rights shall not terminate or preclude the possibility of the exercise of such rights or any other rights in the future or in other instances and circumstances; and no action or behaviour or agreement through negotiations with the participation of OPIC or persons acting in its name shall prevent OPIC from exercising any of their rights and shall not mean the suspension or change of the character, form, and content of any of such rights or of such rights as a whole. CONSEQUENCES OF INVALIDITY OF ANY PROVISION OF THIS CONTRACT 14.3 If any of the provisions of this Contract becomes or are deemed to be void, not conforming to law, or the enforcement of which is impossible in a judicial proceeding in accordance with any norm of law, the validity, conformity to law and legal effect of other provisions shall in no event be brought into doubt nor affected, and all such provisions shall remain in force. APPLICABLE LAW 15. This Contract shall be governed by and interpreted in accordance with the laws of the Russian Federation. ARBITRATION AND JURISDICTION ARBITRATION; RULES; VENUE; LANGUAGE 16.1 Any dispute, controversy or claim arising out of, or relating to, or in connection with, this Contract (including the breach, termination or validity hereof or thereof), and any dispute concerning the scope of this arbitration clause, may, at the option of OPIC and upon written notice to the Pledgor, be referred to for final settlement by arbitration. Such arbitration proceedings shall be conducted in accordance with the International Arbitration rules of the International Chamber of Commerce (ICC) in effect on the date on which the arbitration commences (the RULES). The seat of the arbitration shall be the City of New York, New York, unless OPIC directs that the place of arbitration shall instead by Washington, DC or London. The arbitration shall be conducted in the English language. Upon the Pledgor's receipt of a notice from OPIC of its election to settle by arbitration any dispute, controversy or claim pursuant 15 to this Section 16, the Pledgor shall be obliged to settle such dispute, controversy or claim as provided in this Section 16. If any dispute, controversy or claim is referred to arbitration by OPIC, the Pledgor hereby agrees to the jurisdiction of the arbitral panel with respect to such dispute, controversy or claim to the exclusion of the courts of the Russian Federation or any other jurisdiction. ARBITRATORS; SELECTION; QUALIFICATION 16.2 The arbitration shall be conducted by three arbitrators. OPIC and the Pledgor shall each appoint one arbitrator, and each shall notify the other of the name of its appointee within 60 days of the date of OPIC's notice to the Pledgor. The two arbitrators appointed by OPIC and the Pledgor shall together, within 60 days after the date on which the first two arbitrators were required to be appointed, appoint the third, presiding arbitrator. If OPIC and the Pledgor fail to appoint any arbitrator within the time limits provided hereunder, such arbitrators shall upon the written request of OPIC or the Pledgor, be appointed by the President of the ICC. Each arbitrator shall be fluent in the English language, shall be a disinterested person, and shall be an attorney qualified to practice law in the State of New York or the District of Columbia for a minimum of 5 years, with experience in representing lenders and borrowers in international project finance lending to private sector borrowers. OPIC or the Pledgor may, within 10 days of notice of an appointment, challenge the appointment of an arbitrator as lacking the qualifications set forth in the preceding sentence pursuant to the procedures prescribed by the rules. Any determination by the ICC as to qualification shall be final and binding and not subject to judicial review. If an arbitrator must be replaced for any reason, the appointing party shall endeavour to appoint a substitute within a reasonable time. LAW 16.3 Each arbitral panel established hereunder shall make its decisions entirely on the basis of this Contract or Finance Agreement, as applicable, the governing law provisions provided herein or therein, and the Rules. STATEMENTS OF CLAIM AND DEFENCE; REPRESENTATION; PROCEEDINGS 16.4 OPIC shall communicate its statement of claim in writing to the Pledgor and the arbitral panel within a period of time to be determined by the panel. The Pledgor shall file a statement of defence in writing following receipt of OPIC's statement of claim within a period of time to be determined by the panel. The parties may be represented or assisted by legal counsel of their choice. The arbitral panel shall determine a date on which it shall commence taking evidence, which date shall not be less than 60 days after the Pledgor's submission of its statement of defence, unless OPIC directs otherwise. Where the Rules do not provide for a particular situation, the arbitral panel shall by a majority, in its absolute discretion, determine the course of action to be followed and its decision shall be final. 16 AWARDS 16.5 The arbitral panel shall issue a written decision and award within 60 days after the conclusion of the relevant proceedings. Any award of the arbitral panel shall be final and binding, and judgment upon any arbitral award may be entered and enforced by any court or judicial authority of competent jurisdiction. Any money award shall be made and shall be payable in US dollars. The award shall be limited to the scope of the submission and in no circumstances shall the arbitral panel render an award ex aequo et bono or as amiable compositeur. If either party wishes to submit a request that the arbitral panel interpret the award or correct any clerical, typographical or computation errors, or make an additional award as to claims presented but omitted from the award, such request shall be submitted to the arbitral panel and the other party within 10 days after the award. If the panel considers such request justified, after considering the contention of the parties, the panel shall promptly comply with such request. The arbitral panel. OPIC or the Pledgor shall not be entitled to seek from any judicial authority or take any interim measures or provide any preaward relief against OPIC or the Pledgor, notwithstanding any contrary provisions in the Rules. EXPENSES 16.6 Each party shall pay its own costs, fees and expenses. NO WAIVER 16.7 In invoking any arbitration pursuant to this Section 16, OPIC shall not be deemed to have waived any rights, immunities or privileges to which it or any of its directors, officers or employees are entitled. By submitting to arbitration, OPIC shall not be deemed to have submitted to the jurisdiction of any court other than the United States Court of Claims in Washington DC. COUNTERPARTS 17. This Contract may be executed in two counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same Contract. This Contract has been concluded by the Pledgor and by OPIC on , in two copies in the English language and two copies in the Russian language, each of which has identical legal force. Legal addresses of the parties: Pledgor: OPIC: Pioneer Forest, L.L.C. Overseas Private Investment Corporation 17 Corporation Trust Center 1100 New York Avenue NW 1209 Orange Street Washington DC 20627-0001 USA Wilmington, Delaware 19801 USA SIGNED by ) /s/ Stephen G. Kasnet ) - --------------------- for and on behalf of ) PIONEER FOREST, L.L.C. ) SIGNED by ) /s/ Stephen S. Smith ) - -------------------- for and on behalf of ) OVERSEAS PRIVATE ) INVESTMENT CORPORATION ) 18 ANNEX 1 (BEING AN INTEGRAL PART OF THE CONTRACT OF PLEDGE OF SHARES IN JOINT STOCK COMPANY "FOREST-STARMA" BETWEEN PIONEER FOREST, L.L.C. AND OVERSEAS PRIVATE INVESTMENT CORPORATION OF DECEMBER 28, 1999) PLEDGED SHARES DESCRIPTION VALUE(1) 1455 ordinary registered shares (common stock) in Closed USD18,300,000 Joint-Stock Company "FOREST-STARMA" with a par value of 1 Rouble each PLEDGOR OPIC Pioneer Forest, L.L.C. Overseas Private Investment Corporation Corporation Trust Center 1100 New York Avenue NW Washington DC 20627-0001 1209 Orange Street USA Wilmington, Delaware 19801 USA - -------- (1) The value of the Pledged Shares designed in this Annex is the value of the Pledged Shares, the amount of which has been agreed by OPIC and the Pledgor, based on the audited balance sheet of Closed Joint-Stock Company "FOREST-STARMA" as of 31 December 1998. The value of the Pledged Shares at the moment of the exercise of the rights of OPIC shall be equal to the price of such shares received by OPIC after the sale or realisation by other means of the Pledged Shares, taking into account the location and condition of the assets of the Pledgor at the moment of the exercise of the rights of OPIC. 19 ANNEX 2 (BEING AN INTEGRAL PART OF THE CONTRACT OF PLEDGE OF SHARES IN JOINT STOCK COMPANY "FOREST-STARMA" BETWEEN PIONEER FOREST, L.L.C. AND OVERSEAS PRIVATE INVESTMENT CORPORATION OF DECEMBER 28, 1999) NOTICE OF PLEDGE From: PIONEER FOREST, L.L.C., To: Closed Joint-Stock Company "FOREST-STARMA" Copy to: Overseas Private Investment Corporation Dear Sirs, We hereby give you notice that by a Contract of Pledge of Shares dated [_____ _____] 1999 and made between this Company (hereinafter the PLEDGOR) and Overseas Private Investment Corporation, (hereinafter OPIC) we have pledged absolutely to OPIC all of the shares in Closed Joint-Stock Company "FOREST-STARMA" which the Pledgor intends to acquire from the corporation "Pioneer Forest, Inc. (USA) (hereinafter the CORPORATION). After the aforesaid acquisition of the shares in Closed Joint-Stock Company "FOREST-STARMA" by the Pledgor from the Corporation, and unless and until OPIC has sent you a demand for payment following the occurrence of an event of default in accordance with Section 7 of the Finance Agreement between OPIC and you, we retain the right to all and any dividends and other distributions in connection with the Pledged Shares and to all other rights. This notice and the instructions herein contained are irrevocable. Please acknowledge receipt of this notice to OPIC on the enclosed consent to pledge. Yours faithfully, ......................... For and on behalf of Pioneer Forest, L.L.C. 20 ANNEX 3 (BEING AN INTEGRAL PART OF THE CONTRACT OF PLEDGE OF SHARES IN JOINT STOCK COMPANY "FOREST-STARMA" BETWEEN PIONEER FOREST, L.L.C. AND OVERSEAS PRIVATE INVESTMENT CORPORATION OF DECEMBER 28, 1999) ACKNOWLEDGEMENT OF PLEDGE From: Closed Joint-Stock Company "FOREST-STARMA" To: Overseas Private Investment Corporation Date: Dear Sirs, We acknowledge receipt of a notice of pledge dated December 28, 1999 (hereinafter - the NOTICE) from Pioneer Forest, L.L.C. (hereinafter the PLEDGOR) and confirm that the Notice is adequate notice of a Contract of Pledge of Shares dated December 28, 1999. We further acknowledge that the Notice confers on you the rights of the Pledgee in respect of all the shares of the Pledgor in Closed Joint-Stock Company "FOREST-STARMA" which the Pledgor will acquire from the corporation "Pioneer Forest, Inc." (USA) (hereinafter the CORPORATION) and that the issuance of the shares has been properly registered in accordance with the laws of the Russian Federation. Notice of Pledge will be entered on the register of shareholders of Closed Joint-Stock Company "FOREST-STARMA" after the acquisition of the shares in Closed Joint-Stock Company "FOREST-STARMA" by the Pledgee from the Corporation. Yours faithfully, ........................................ For and on behalf of Closed Joint-Stock Company "FOREST-STARMA" EX-10.93 9 AGREEMENT-SUBORDINATION AGREEMENT 1 Exhibit 10.93 AGREEMENT WITH RESPECT TO SUBORDINATION AGREEMENT AGREEMENT (the "Agreement"), dated as of December 28, 1999, among THE PIONEER GROUP, INC., a corporation organized and existing under the laws of the state of Delaware ("PGI"), PIONEER FOREST, INC., a corporation organized and existing under the laws of the state of Delaware and a wholly owned subsidiary of PGI ("PFI"), PIONEER FOREST, L.L.C., a limited liability company organized and existing under the laws of the state of Delaware and a wholly owned subsidiary of PFI ("PFLLC"), CLOSED JOINT-STOCK COMPANY "FOREST-STARMA", a closed joint stock company organized and existing under the legislation of the Russian Federation (the "Borrower"), and the OVERSEAS PRIVATE INVESTMENT CORPORATION, an agency of the United States Government ("OPIC"). WITNESSETH: WHERAS, State Street Bank and Trust Company (the "Subordinated Lender"), PGI, International Joint Stock Company "Starma Holding"("Starma Holding"), the Borrower and OPIC are parties to a Subordination Agreement, dated as of December 21, 1995 (the "Subordination Agreement"), the Subordinated Lender, PGI, PFI, the Borrower and OPIC are parties to a Limited Waiver Agreement with Respect to Subordination Agreement, dated as of June 3, 1999 (the "Waiver Agreement"), pursuant to which PFI agreed to be bound by the terms of the Subordination Agreement, and to be jointly and severally responsible and liable for the obligations of PGI thereunder, the Borrower and OPIC are parties to a Finance Agreement, dated as of December 21,1995, as amended to and including the date hereof (the "Finance Agreement"), the Borrower, PGI, Starma Holding and OPIC are parties to a Project Completion Agreement, dated as of December 21, 1995, and the Borrower, PGI, PFI and OPIC are parties to an Agreement with Respect to Project Completion Agreement, dated as of June 3, 1999; WHEREAS, all capitalized terms used herein and not otherwise defined herein shall have their respective meanings set forth in the Finance Agreement, the Project Completion Agreement and the Subordination Agreement; and WHEREAS, as a result of the Share Transfer, PFLLC will own 100% of the shares of capital stock of the Company and PFI will no longer hold any capital stock of the Company. NOW, THEREFORE, the parties agree as follows: 1. Undertaking of PFLLC. PFLLC hereby agrees to be bound by the terms of the Subordination Agreement and the Waiver Agreement, and to be jointly and severally responsible and liable for the obligations and liabilities of PFI and PGI thereunder, and in 2 connection with this undertaking to appoint an agent for service of process satisfactory to OPIC in compliance with Section 19 of the Subordination Agreement and give OPIC written notice thereof with 30 days after the date hereof. Notices to PFLLC may be given to it at the following address: 60 State Street Boston, MA 02109 Tel: 617-742-7825 Fax: 617-422-4286 Attention: President 2. Representations and Warranties. Each of the parties represents to the other parties that this Agreement constitutes a legal, valid and binding obligation of it, enforceable against it in accordance with its terms. 3. Ratification and Confirmation. All the terms and provisions of the Subordination Agreement and the Waiver Agreement are hereby ratified and confirmed by the parties hereto and shall apply in full force and effect. 4. No Waiver. The Borrower acknowledges and agrees that except as expressly provided in Section 1 of this Agreement, OPIC, in executing and delivering this Agreement, has not and shall not be deemed to have waived, released or modified any right or power that it may have under the Finance Agreement to claim that any Event of Default has occurred or is occurring, and the execution and delivery of this Agreement shall not be deemed a waiver by OPIC of any such Event of Default. 5. Effective Date. This Agreement shall be effective as of the date hereof. 6. Counterparts. This Agreement may be executed in counterparts, each of which when so executed and delivered shall be deemed an original and all of which shall constitute one and the same instrument. IN WITNESS whereof, the parties hereto have caused this Agreement to be executed by their authorized representatives as of the day and year first above written. THE PIONEER GROUP, INC. By: /s/ Stephen G. Kasnet ------------------------------ Its: Executive Vice President 3 PIONEER FOREST, INC. By: /s/ Stephen G. Kasnet ------------------------------ Its: President PIONEER FOREST, L.L.C. By: /s/ Stephen G. Kasnet ------------------------------ Its: President CLOSED JOINT-STOCK COMPANY "FOREST-STARMA" By: /s/ Donald H. Hunter ------------------------------ Donald H. Hunter On the basis of power of attorney No. 73, Dated December 3, 1999 By: /s/ Catherine V. Mannick ------------------------------ Catherine V. Mannick On the basis of power of attorney No. 74, Dated December 3, 1999 By: /s/ Inna Verdini ------------------------------ Inna Verdini On the basis of power of attorney No. 72, Dated December 3, 1999 OVERSEAS PRIVATE INVESTMENT CORPORATION By: /s/ Steven S. Smith ------------------------------ Its: Investment Officer EX-10.94(7) 10 FORM OF EXECUTIVE RETENTION AGREEMENT 1 EXHIBIT 10.94 THE PIONEER GROUP, INC. EXECUTIVE RETENTION AGREEMENT THIS EXECUTIVE RETENTION AGREEMENT by and between The Pioneer Group, Inc., a Delaware corporation (the "Company"), and _________________ (the "Executive") is made as of __________, 2000 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "CHANGE IN CONTROL" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 25% or more of either (i) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); PROVIDED, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a 2 Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (iv) any acquisition by John F. Cogan, Jr., or (v) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; PROVIDED, HOWEVER, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company, including but not limited to a sale of the assets of the Company related to its domestic investment management business (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 25% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or -2- 3 (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.2 "CHANGE IN CONTROL DATE" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. Anything in this Agreement to the contrary notwithstanding, if (a) a Change in Control occurs, (b) the Executive's employment with the Company is terminated prior to the date on which the Change in Control occurs, and (c) it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with or in anticipation of a Change in Control, then for all purposes of this Agreement the "Change in Control Date" shall mean the date immediately prior to the date of such termination of employment. 1.3 "CAUSE" means: (a) the Executive's willful and continued failure to substantially perform [his/her] reasonable assigned duties as an officer of the Company (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "GOOD REASON" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (f) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) the assignment to the Executive of duties inconsistent in any material respect with the Executive's position (including status, offices, titles, and reporting requirements), authority or responsibilities in effect immediately prior to the earliest to occur of (i) the Change in Control Date, (ii) the date of the execution by the Company of the initial written agreement or instrument providing for the Change in Control or (iii) the date of the adoption by the Board of Directors of a resolution providing for the Change in Control (with the earliest to occur of such dates referred to herein as the "Measurement Date"), or any other action -3- 4 or omission by the Company which results in a diminution in such position, authority or responsibilities; (b) a reduction in the Executive's (i) annual base salary as in effect on the Measurement Date or as the same was or may be increased from time to time or (ii) potential annual bonus as in effect on the Measurement Date or as the same was or may be increased from time to time; (c) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (d) a change by the Company in the location at which the Executive performs [his/her] principal duties for the Company to a new location that is both (i) outside a radius of 20 miles from the Executive's principal residence immediately prior to the Measurement Date and (ii) more than 20 miles from the location at which the Executive performed [his/her] principal duties for the Company immediately prior to the Measurement Date; or a requirement by the Company that the Executive travel on Company business to a substantially greater extent than required immediately prior to the Measurement Date; (e) the failure of the Company to obtain the agreement, in a form reasonably satisfactory to the Executive, from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; or (f) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of any employment agreement with the Executive. The Executive's right to terminate [his/her] employment for Good Reason shall not be affected by [HIS/HER] incapacity due to physical or mental illness. 1.5 "DISABILITY" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 180 consecutive calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. -4- 5 2. TERM OF AGREEMENT. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the date 24 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (c) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 24 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2002; PROVIDED, however, that commencing on January 1, 2003 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. EMPLOYMENT STATUS; TERMINATION FOLLOWING CHANGE IN CONTROL. 3.1 NOT AN EMPLOYMENT CONTRACT. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder except as otherwise provided pursuant to Section 1.2. 3.2 TERMINATION OF EMPLOYMENT. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 24 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's right hereunder. -5- 6 (c) Any Notice of Termination for Cause given by the Company must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company or a designated committee thereof, at which [he/she] may, at [HIS/HER] election, be represented by counsel and at which [he/she] shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Company's intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Company believes constitutes Cause for termination. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. BENEFITS TO EXECUTIVE. 4.1 STOCK ACCELERATION. If the Change in Control Date occurs during the Term, then, effective upon the Change in Control Date, (a) each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall become immediately exercisable in full and (b) each outstanding restricted stock award issued under the Company's 1995 Restricted Stock Plan shall be deemed to be fully vested and no longer subject to a right of repurchase by the Company. Notwithstanding the foregoing provisions of this Section 4.1, if the Change in Control arises as a result of a Business Combination which is intended to be accounted for as a "pooling of interests" for financial accounting purposes, and if the acceleration, vesting or release of restrictions to be effected by the foregoing provisions of this Section 4.1 would preclude accounting for the Change in Control as a "pooling of interests" for financial accounting purposes, then the terms of such options or restricted stock awards shall remain unchanged. 4.2 COMPENSATION. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 24 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or Death) or by the Executive for Good Reason within 24 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the Executive's Target Bonus, as defined below, and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or -6- 7 earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) three multiplied by (B) the sum of (x) the Executive's current annual base salary, but not less than the Executive's annual base salary on the date of this Agreement and (y) the Executive's Target Bonus (3) For purposes of calculating the amount to be paid under this Section 4(a)(i), and not for any other purpose, the Executive's Target Bonus shall be an amount equal to the Executive's annual base salary. (ii) for 24 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and [his/her] family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; (iii) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); (iv) The Company shall provide conventional outplacement services having a value of not more than 20% of the Executive's annual base salary; and (v) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 24 months after the Date of Termination. (b) RESIGNATION WITHOUT GOOD REASON; TERMINATION FOR DEATH OR DISABILITY. If the Executive voluntarily terminates [his/her] employment with the Company within 24 months following the Change in Control Date, excluding a termination for Good Reason, or if the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 24 months following the Change in Control Date, then the Company shall (i) pay the Executive (or [his/her] estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) TERMINATION FOR CAUSE. If the Company terminates the Executive's employment with the Company for Cause within 24 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of -7- 8 Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.3 TAXES. (a) Notwithstanding any other provision of this Agreement, except as set forth in Section 4.3(b), in the event that the Company undergoes a "Change in Ownership or Control" (as defined below), the Company shall not be obligated to provide to the Executive a portion of any "Contingent Compensation Payments" (as defined below) that the Executive would otherwise be entitled to receive to the extent necessary to eliminate any "excess parachute payments" (as defined in Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended (the "Code")) for the Executive. For purposes of this Section 4.3, the Contingent Compensation Payments so eliminated shall be referred to as the "Eliminated Payments" and the aggregate amount (determined in accordance with Proposed Treasury Regulation Section 1.280G-1, Q/A-30 or any successor provision) of the Contingent Compensation Payments so eliminated shall be referred to as the "Eliminated Amount." (b) Notwithstanding the provisions of Section 4.3(a), no such reduction in Contingent Compensation Payments shall be made if (i) the Eliminated Amount (computed without regard to this sentence) exceeds (ii) the aggregate present value (determined in accordance with Proposed Treasury Regulation Section 1.280G-1, Q/A-31 and Q/A-32 or any successor provisions) of the amount of any additional taxes that would be incurred by the Executive if the Eliminated Payments (determined without regard to this sentence) were paid to [him/her] (including, state and federal income taxes on the Eliminated Payments, the excise tax imposed by Section 4999 of the Code payable with respect to all of the Contingent Compensation Payments in excess of the Executive's "base amount" (as defined in Section 280G(b)(3) of the Code), and any withholding taxes). The override of such reduction in Contingent Compensation Payments pursuant to this Section 4.3(b) shall be referred to as a "Section 4.3(b) Override." For purpose of the preceding sentence, if any federal or state income taxes would be attributable to the receipt of any Eliminated Payment, the amount of such taxes shall be computed by multiplying the amount of the Eliminated Payment by the maximum combined federal and state income tax rate provided by law. (c) For purposes of this Section 4.3 the following terms shall have the following respective meanings: (i) "Change in Ownership or Control" shall mean a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company determined in accordance with Section 280G(b)(2) of the Code. (ii) "Contingent Compensation Payment" shall mean any payment (or benefit) in the nature of compensation that is made or made available (under this Agreement or otherwise) to a "disqualified individual" (as defined in Section 280G(c) of the Code) and that is contingent (within the meaning of Section 280G(b)(2)(A)(i) of the Code) on a Change in Ownership or Control of the Company. -8- 9 (d) Any payments or other benefits otherwise due to the Executive following a Change in Ownership or Control that could reasonably be characterized (as determined by the Company) as Contingent Compensation Payments (the "Potential Payments") shall not be made until the dates provided for in this Section 4.3(d). Within 30 days after each date on which the Executive first becomes entitled to receive (whether or not then due) a Contingent Compensation Payment relating to such Change in Ownership or Control, the Company shall determine and notify the Executive (with reasonable detail regarding the basis for its determinations) (i) which Potential Payments constitute Contingent Compensation Payments, (ii) the Eliminated Amount and (iii) whether the Section 4.3(b) Override is applicable. Within 30 days after delivery of such notice to the Executive, the Executive shall deliver a response to the Company (the "Executive Response") stating either (A) that [he/she] agrees with the Company's determination pursuant to the preceding sentence, in which case [he/she] shall indicate, if applicable, which Contingent Compensation Payments, or portions thereof (the aggregate amount of which, determined in accordance with Proposed Treasury Regulation Section 1.280G-1, Q/A-30 or any successor provision, shall be equal to the Eliminated Amount), shall be treated as Eliminated Payments or (B) that [he/she] disagrees with such determination, in which case [he/she] shall set forth (i) which Potential Payments should be characterized as Contingent Compensation Payments, (ii) the Eliminated Amount, (iii) whether the Section 4.3(b) Override is applicable, and (iv) which (if any) Contingent Compensation Payments, or portions thereof (the aggregate amount of which, determined in accordance with Proposed Treasury Regulation Section 1.280G-1, Q/A-30 or any successor provision, shall be equal to the Eliminated Amount, if any), shall be treated as Eliminated Payments. In the event that the Executive fails to deliver an Executive Response on or before the required date, the Company's initial determination shall be final and the Contingent Compensation Payments that shall be treated as Eliminated Payments shall be determined by the Company in its absolute discretion. If the Executive states in the Executive Response that [he/she] agrees with the Company's determination, the Company shall make the Potential Payments to the Executive within three business days following delivery to the Company of the Executive Response (except for any Potential Payments which are not due to be made until after such date, which Potential Payments shall be made on the date on which they are due). If the Executive states in the Executive Response that [he/she] disagrees with the Company's determination, then, for a period of 60 days following delivery of the Executive Response, the Executive and the Company shall use good faith efforts to resolve such dispute. If such dispute is not resolved within such 60-day period, such dispute shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. The Company shall, within three business days following delivery to the Company of the Executive Response, make to the Executive those Potential Payments as to which there is no dispute between the Company and the Executive regarding whether they should be made (except for any such Potential Payments which are not due to be made until after such date, which Potential Payments shall be made on the date on which they are due). The balance of the Potential Payments shall be made within three business days following the resolution of such dispute. Subject to the limitations contained in Sections 4.3(a) and (b) hereof, the amount of any payments to be made to the Executive following the resolution of such dispute shall be increased by amount of the accrued interest thereon computed at the prime rate published from time to time in the Wall Street Journal, compounded monthly from the date that such payments originally were due. -9- 10 (e) Upon the written request of the Executive (which request must specify the Executive's actual tax circumstances) delivered to the Company within 90 days following the timely filing of all relevant tax returns for the Executive for the year or other taxable period in which the Eliminated Payments would have been made, the Eliminated Payments shall be recomputed based upon the Executive's actual tax circumstances. If, as a result of such recomputation, there are no Eliminated Payments, the Executive shall become entitled to receive Contingent Compensation Payments previously treated as Eliminated Payments within 10 days of the delivery of the aforementioned request. (f) The provisions of this Section 4.3 are intended to apply to any and all payments or benefits available to the Executive under this Agreement or any other agreement or plan of the Company under which the Executive receives Contingent Compensation Payments. 4.4 MITIGATION. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 5. DISPUTES. 5.1 SETTLEMENT OF DISPUTES; ARBITRATION. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 EXPENSES. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code. 6. SUCCESSORS. 6.1 SUCCESSOR TO COMPANY. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or -10- 11 substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 SUCCESSOR TO EXECUTIVE. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or [his/her] family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. NOTICE. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 60 State Street, Boston, MA 02109, and to the Executive at _____________ (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. MISCELLANEOUS. 8.1 EMPLOYMENT BY SUBSIDIARY. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 INJUNCTIVE RELIEF. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. -11- 12 8.4 GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 WAIVERS. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 TAX WITHHOLDING. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 CONFIDENTIALITY. The Executive understands and agrees that the terms and contents of this Agreement shall be maintained as confidential by the Employee, [his/her] agents and representatives, and shall not be disclosed except to the extent required by federal or state law or as otherwise agreed to in writing by each party. 8.9 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. 8.10 AMENDMENTS. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. THE PIONEER GROUP, INC. By: ---------------------------------- Title: ------------------------------- ------------------------------------- [NAME OF EXECUTIVE] -12- EX-21 11 LISTING OF SUBSIDIARIES 1 Exhibit 21 The Pioneer Group, Inc. Subsidiaries - ------------------------------------------------------------------------------------------------------------------------- PIOGlobal Insurance Company Limited Bermuda - ------------------------------------------------------------------------------------------------------------------------- Pioneer Global Funds Distributor, Ltd. Bermuda - ------------------------------------------------------------------------------------------------------------------------- Pioneer Goldfields Limited Channel Islands - ------------------------------------------------------------------------------------------------------------------------- Pioneer Goldfields II Limited Channel Islands and Delaware - ------------------------------------------------------------------------------------------------------------------------- Pioneer Poland US (Jersey) Limited Channel Islands - ------------------------------------------------------------------------------------------------------------------------- Pioneering Management (Jersey) Limited Channel Islands - ------------------------------------------------------------------------------------------------------------------------- Beijing Pioneer Zhong Investment Consulting Co., Ltd. China - ------------------------------------------------------------------------------------------------------------------------- Anabasis Enterprises Limited Cyprus - ------------------------------------------------------------------------------------------------------------------------- Pioneer Czech Financial Company, s.r.o. Czech Republic - ------------------------------------------------------------------------------------------------------------------------- Pioneer Czech Investment Company, a.s. Czech Republic - ------------------------------------------------------------------------------------------------------------------------- Pioneer Trust, Pioneer Czech Investment Company, a.s. Czech Republic - ------------------------------------------------------------------------------------------------------------------------- Luscinia, Inc. Delaware - ------------------------------------------------------------------------------------------------------------------------- PBO Holdings, L.L.C. Delaware - ------------------------------------------------------------------------------------------------------------------------- PBO Property Capital, L.L.C. Delaware - ------------------------------------------------------------------------------------------------------------------------- PBO Property Fund, L.L.C. Delaware - ------------------------------------------------------------------------------------------------------------------------- PGH Nebraska, Inc. Delaware - ------------------------------------------------------------------------------------------------------------------------- PGIA Corporation Delaware - ------------------------------------------------------------------------------------------------------------------------- PIOGlobal Corporation Delaware - ------------------------------------------------------------------------------------------------------------------------- Pioneer Explorer, Inc. Delaware - ------------------------------------------------------------------------------------------------------------------------- Pioneer First Russia, Inc. Delaware - ------------------------------------------------------------------------------------------------------------------------- Pioneer Forest, Inc. Delaware - ------------------------------------------------------------------------------------------------------------------------- Pioneer International Corporation Delaware - ------------------------------------------------------------------------------------------------------------------------- Pioneer Investment Management, Inc. Delaware - ------------------------------------------------------------------------------------------------------------------------- Pioneer Metals and Technology, Inc. Delaware - ------------------------------------------------------------------------------------------------------------------------- Pioneer Omega, Inc. Delaware - ------------------------------------------------------------------------------------------------------------------------- Pioneer Plans Corporation Delaware - ------------------------------------------------------------------------------------------------------------------------- Pioneer Poland GP Limited Partnership Delaware - ------------------------------------------------------------------------------------------------------------------------- Pioneer Poland U.S. L.P. Delaware - ------------------------------------------------------------------------------------------------------------------------- Pioneer Real Estate Advisors, Inc. Delaware - ------------------------------------------------------------------------------------------------------------------------- Theta Enterprises, Inc. Delaware - ------------------------------------------------------------------------------------------------------------------------- Pioneer Poland UK L.P. England - ------------------------------------------------------------------------------------------------------------------------- UKS Securities Limited England - ------------------------------------------------------------------------------------------------------------------------- Pioneer Fonds Marketing GmbH Germany - ------------------------------------------------------------------------------------------------------------------------- Teberebie Goldfields Limited Ghana - ------------------------------------------------------------------------------------------------------------------------- Kothari Pioneer AMC Ltd. India - ------------------------------------------------------------------------------------------------------------------------- Pioneer Management (Ireland) Limited Ireland and Germany - ------------------------------------------------------------------------------------------------------------------------- Pioneer Funds Distributor, Inc. Massachusetts - ------------------------------------------------------------------------------------------------------------------------- Pioneer Goldfields Trust Massachusetts - ------------------------------------------------------------------------------------------------------------------------- Pioneer Investments Corporation Massachusetts - ------------------------------------------------------------------------------------------------------------------------- Pioneering Services Corporation Massachusetts - ------------------------------------------------------------------------------------------------------------------------- Pioneer Asset Management S.A. Poland - ------------------------------------------------------------------------------------------------------------------------- Pioneer Financial Services Ltd. Poland - ------------------------------------------------------------------------------------------------------------------------- Pioneer First Polish Investment Fund s.a. Poland - ------------------------------------------------------------------------------------------------------------------------- Pioneer Investments Poland, Ltd. Poland - -------------------------------------------------------------------------------------------------------------------------
2 Exhibit 21 - ------------------------------------------------------------------------------------------------------------------------- Pioneer Mercury Sp z.o.o. Poland - ------------------------------------------------------------------------------------------------------------------------- Pioneer Nationwide Sp. z o.o. Poland - ------------------------------------------------------------------------------------------------------------------------- Pioneer Polish Real Estate Fund Poland - ------------------------------------------------------------------------------------------------------------------------- Pioneer Real Estate Advisors Poland Sp.z o.o. Poland - ------------------------------------------------------------------------------------------------------------------------- Pioneer Universal Pension Fund Company Poland - ------------------------------------------------------------------------------------------------------------------------- Closed Joint-Stock Company Amgun-Forest Russian Federation - ------------------------------------------------------------------------------------------------------------------------- Closed Joint-Stock Company Forest-Starma Russian Federation - ------------------------------------------------------------------------------------------------------------------------- Closed Joint Stock Company Gradient Russian Federation - ------------------------------------------------------------------------------------------------------------------------- Closed Joint Stock Company Pioneer First Russian Federation - ------------------------------------------------------------------------------------------------------------------------- Closed Joint-Stock Company Pioneer Metals International Russian Federation - ------------------------------------------------------------------------------------------------------------------------- Closed Joint Stock Company Pioneer Services Russian Federation - ------------------------------------------------------------------------------------------------------------------------- Closed Joint Stock Company Pioneer Starma Equipment Russian Federation - ------------------------------------------------------------------------------------------------------------------------- Closed Joint Stock Company Starma-Holding Russian Federation - ------------------------------------------------------------------------------------------------------------------------- Closed Joint Stock Company Starma-Port Russian Federation - ------------------------------------------------------------------------------------------------------------------------- Closed Joint-Stock Company Tas-Yurjah Mining Company Russian Federation - ------------------------------------------------------------------------------------------------------------------------- Closed Joint Stock Company Udinskoye Russian Federation - ------------------------------------------------------------------------------------------------------------------------- JSL Co. Dalplaz Russian Federation - ------------------------------------------------------------------------------------------------------------------------- Pioneer First Investment Fund Russian Federation - ------------------------------------------------------------------------------------------------------------------------- Pioneer Investments Russian Federation - ------------------------------------------------------------------------------------------------------------------------- ZAO Pioneer Securities Russian Federation - ------------------------------------------------------------------------------------------------------------------------- Core Pacific Securities Investment Trust Co., Ltd. Taiwan - -------------------------------------------------------------------------------------------------------------------------
EX-23 12 CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report, dated February 4, 2000, included in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 33-61932, 33-59185, 33-59183, 333-31847 and 333-78771. Arthur Andersen LLP Boston, Massachusetts March 20, 2000 EX-27.99 13 FINANCIAL DATA SCHEDULE-1999
5 EX-27.99 FINANCIAL DATA SCHEDULE 1,000 U.S. DOLLARS 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 1.00000 36,740 3,850 38,255 0 3,908 92,601 87,189 (25,868) 299,832 86,640 63,892 0 0 2,653 84,445 299,832 0 249,904 0 216,098 14,712 0 7,013 12,081 9,256 2,825 (73,682) 0 (12,112) (82,969) (3.200) (3.170)
EX-27.98 14 FINANCIAL DATA SCHEDULE-1998
5 EX-27.98 RESTATED FINANCIAL DATA SCHEDULE 1,000 U.S. DOLLARS 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 1.00000 44,212 3,638 47,742 0 3,585 123,232 82,320 (18,215) 439,218 80,970 99,035 0 0 2,613 152,189 439,218 0 247,545 0 241,432 (8,767) 0 11,897 2,983 9,384 (6,401) (27,067) 0 0 (33,468) (1.330) (1.320)
EX-27.97 15 FINANCIAL DATA SCHEDULE-1997
5 EX-27.97 RESTATED FINANCIAL DATA SCHEDULE 1,000 U.S. DOLLARS 12-MOS DEC-31-1998 JAN-01-1997 DEC-31-1997 1.00000 55,601 10,649 56,792 0 27,929 168,502 245,153 (86,483) 567,214 101,921 168,424 0 0 2,522 181,165 567,214 0 241,029 0 194,050 (22,095) 0 8,629 60,445 28,202 32,243 (3,077) 0 0 29,166 1.170 1.140
EX-99 16 PIONEER PENSION FUND COMPANY FINANCIAL STATEMENTS 1 EXHIBIT 99 PIONEER PENSION FUND COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD FROM OCTOBER 29,1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998 TOGETHER WITH AUDITORS' REPORT 2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Pioneer Pension Fund Company: We have audited the accompanying balance sheets of Pioneer Pension Fund Company, as of December 31, 1999 and 1998 and the related statements of operations, cash flows and stockholders' equity for the year ended December 31, 1999 and for the period from October 29, 1998 (Date of Inception) to December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pioneer Pension Fund Company as of December 31, 1999 and 1998 and the results of its operations and its cash flows for the year ended December 31, 1999 and for the period from October 29, 1998 (Date of Inception) to December 31, 1998 in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Boston, Massachusetts February 4, 2000 3 PIONEER PENSION FUND COMPANY BALANCE SHEETS DECEMBER 31, 1999 AND 1998
1999 1998 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 11,507,135 $ 9,634,342 Restricted cash 90,423 -- Accounts receivable 148,136 -- Prepaid expenses 86,059 6,360 ------------ ----------- Total current assets 11,831,753 9,640,702 ------------ ----------- NONCURRENT ASSETS: Deferred sales commissions, net 3,370,256 -- Fixed assets (net of accumulated depreciation and amortization of $361,073 in 1999 and $44,367 in 1998) 515,691 117,548 ------------ ----------- Total noncurrent assets 3,885,947 117,548 ------------ ----------- Total assets $ 15,717,700 $ 9,758,250 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES CURRENT LIABILITIES: Accounts payable $ 142,774 $ 52,655 Commissions 398,303 -- Accrued expenses 485,782 64,194 Due to affiliates 467,878 103,129 ------------ ----------- Total current liabilities 1,494,737 219,978 ------------ ----------- COMMITMENTS AND CONTINGENCIES (NOTE 9) STOCKHOLDERS' EQUITY: Common stock - at par value, authorized; issued and outstanding 485,714 shares in 1999 and 340,000 shares in 1998 13,598,327 9,880,849 Paid-in capital 16,282,522 -- Cumulative translation adjustment (1,936,483) (178,547) Retained deficit (13,721,403) (164,030) ------------ ----------- Total stockholders' equity 14,222,963 9,538,272 ------------ ----------- Total liabilities and stockholders' equity $ 15,717,700 $ 9,758,250 ============ ===========
The accompanying notes are an integral part of these financial statements. 4 PIONEER PENSION FUND COMPANY STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD FROM OCTOBER 29, 1998 (DATE OF INCEPTION) TO DECEMBER 31,1998 1999 1998 REVENUES: Underwriting and distribution fees $ 293,981 $ -- Management fees 5,717 -- Interest income 914,100 92,883 Other income 367,110 -- ------------ ----------- Total revenues 1,580,908 92,883 ------------ ----------- EXPENSES: Distribution 1,455,514 31,165 Compensation and benefits 3,989,778 92,420 General and administrative 2,135,306 159,494 Amortization of deferred sales commissions 979,885 -- Shareholder services fees 358,438 -- Advertising and promotion 6,426,176 7,919 ------------ ----------- Total expenses 15,345,097 290,998 ------------ ----------- OTHER INCOME (EXPENSE): Foreign exchange transaction gain 483,277 35,628 Other (276,461) (1,543) ------------ ----------- Total other income (expense) 206,816 34,085 NET LOSS BEFORE INCOME TAXES (13,557,373) (164,030) PROVISION (BENEFIT) FOR INCOME TAXES -- -- ------------ ----------- NET LOSS $(13,557,373) $ (164,030) ============ =========== The accompanying notes are an integral part of these financial statements. 5 PIONEER PENSION FUND COMPANY STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD FROM OCTOBER 29, 1998 TO DECEMBER 31, 1998
1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(13,557,373) $ (164,030) Depreciation and amortization 316,706 44,367 Loss on disposal of fixed assets 43,650 -- Changes in operating assets and liabilities- Prepaid expenses (79,699) (6,360) Accounts receivable (148,136) -- Deferred sales commissions, net (3,755,150) -- Accounts payable 90,119 52,655 Commissions 398,303 -- Accrued expenses 421,588 64,194 Due to affiliates 364,749 103,129 ------------ ----------- Net cash (used in) provided by operating activities (15,905,243) 93,955 ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to furniture, equipment and leasehold improvements (867,834) (161,915) Proceeds from sale of fixed assets 50,442 -- ------------ ----------- Net cash used in investing activities (817,392) (161,915) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock 20,000,000 9,880,849 Restricted cash (90,423) -- ------------ ----------- Net cash provided by financing activities 19,909,577 9,880,849 ------------ ----------- EFFECT OF FOREIGN CURRENCY EXCHANGE RATES ON CASH AND CASH EQUIVALENTS (1,314,149) (178,547) NET INCREASE IN CASH AND CASH EQUIVALENTS 1,872,793 9,634,342 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,634,342 -- ------------ ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,507,135 $ 9,634,342 ============ ===========
The accompanying notes are an integral part of these financial statements. 6 PIONEER PENSION FUND COMPANY STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD FROM OCTOBER 29, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1999
Common Stock -------------------------- Cumulative Paid-in- translation Retained Comprehensive Shares Amount capital adjustment Deficit Total loss ------------ ----------- ----------- ----------- ------------ ------------ ------------- BALANCE AT OCTOBER 29, 1998 (DATE OF INCEPTION) $ $ $ $ $ $ Common stock issued 340,000 9,880,849 -- -- -- 9,880,849 -- Net loss for the year -- -- -- -- (164,030) (164,030) (164,030) Cumulative translation adjustment -- -- -- (178,547) -- (178,547) (178,547) Comprehensive loss -- -- -- -- -- -- $ (342,577) ------------ ----------- ----------- ----------- ------------ ------------ ============ BALANCE AT DECEMBER 31, 1998 340,000 9,880,849 -- (178,547) (164,030) 9,538,272 ------------ ----------- ----------- ----------- ------------ ------------ Common stock issued 145,714 3,717,478 16,282,522 -- -- 20,000,000 -- Net loss for the year -- -- -- -- (13,557,373) (13,557,373) (13,557,373) Cumulative translation adjustment -- -- -- (1,757,936) -- (1,757,936) (1,757,936) Comprehensive loss -- -- -- -- -- -- $(15,315,309) ------------ ----------- ----------- ----------- ------------ ------------ ============ BALANCE AT DECEMBER 31, 1999 485,714 $13,598,327 $16,282,522 $(1,936,483) $(13,721,403) $ 14,222,963 ============ =========== =========== =========== ============ ============
The accompanying notes are an integral part of these financial statements. 5 7 PIONEER PENSION FUND COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 (1) NATURE OF OPERATIONS AND ORGANIZATION Pioneer Pension Fund Company (the Company) was established on October 29,1998 as a wholly-owned subsidiary of The Pioneer Group, Inc. (PGI). On April 8, 1999, additional Common Stock was issued to a third party for $20,000,000, diluting PGI's ownership of the Company to 70%. The Company manages the Pioneer Pension Fund (the Fund). The Fund receives pension contributions from Polish citizens as a result of the Polish government's pension reform program. Eligible Polish citizens were required to select a private pension fund before the end of 1999. Those between 18 and 30 years old were required to select a pension fund or be assigned one via a government allocation process. Polish citizens between 31 and 50 years old could also select a private pension fund or remain under the current pension system. The government allocation for those under 30 who did not select a particular pension fund will be based on the total number of participants signed up by each of the funds. This allocation is expected in the first half of 2000. An estimated 9,500,000 participants were signed up by 21 pension companies in 1999. The Polish government pension office responsible for registering participants and transferring monthly contributions into the respective pension funds is backlogged an estimated three to four months as of December 31, 1999. The Fund has received at least one monthly contribution on 34% of its 110,000 accounts. The Fund has an estimated 110,000 accounts at December 31, 1999, which include approximately 20,000 accounts that are in the process of being transferred in from other pension funds and an estimated 6,200 resignations. Transfers between funds are processed and verified through the Polish government pension office. Beginning in 2000, new accounts will be solicited from those who turn 18 years old and from those transferring from other pension funds. As manager of the Fund, the Company incurs all distribution costs and advertising expenses associated with the acquisition of customer accounts. (2) BASIS OF PRESENTATION The financial statements have been prepared in accordance with United States generally accepted accounting principles (GAAP) and are presented in U.S. dollars (USD). Polish accounting records are maintained according to the statutory accounting rules of the Polish Federation. The accompanying financial statements are based on the Company's accounting records, appropriately adjusted and reclassified for fair presentation in accordance with GAAP. The functional currency of the Company is the Polish zloty (PLN). For the purposes of presentation in USD, assets and liabilities are translated at current exchange rates as of the end of the accounting period, and related revenues and expenses are translated at average exchange rates in effect during 8 PIONEER PENSION FUND COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 (Continued) the period. Net exchange gains and losses resulting from translation are excluded from income and are recorded as a cumulative translation adjustment in the accompanying balance sheets. (3) PRINCIPAL ACCOUNTING POLICIES (a) Fixed Assets Fixed assets are recorded at historical cost less accumulated depreciation or amortization. Depreciation and amortization is provided to write off the cost of the assets on a straight-line basis over the estimated useful economic life of the asset. The economic lives are as follows: YEARS Leasehold improvements 10 Fixtures and furniture 5 Computer equipment 3 Vehicles 5 (b) Deferred Sales Commissions Distribution costs paid in connection with the acquisition of customer accounts are capitalized and amortized over periods not exceeding two years-the contractual period of benefit. The capitalized amount includes all sales compensation, related payroll taxes, incentives and account fees paid to sales agents and external distributors based on the number of accounts signed up. Amortization begins either when the first contribution is received into the fund or two months after the account is signed up, whichever occurs first. Underwriting and distribution fees are received at the rate of 8.8% of each contribution. A deferred sales charge is assessed to accounts that transfer from the Company prior to the completion of the minimum investment period of two years. The deferred sales charge is sufficient to recover the unamortized deferred sales commissions during the contractual period of benefit. A valuation allowance of $631,000 has been established related to estimated nonperforming accounts. (c) Recognition of Revenues Investment management fees, investment income and distribution fees are all recognized as earned. Underwriting commissions are recorded upon receipt of the contribution into the fund. (d) Advertising and Promotion Costs of advertising and promotion are expensed as the advertising appears in the media. 9 PIONEER PENSION FUND COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 (Continued) (e) Cash Flows Cash and cash equivalents consist primarily of cash on deposit in banks and amounts invested in commercial paper and Polish treasury bills with original maturities of three months or less. Amounts invested in Polish treasury bills approximate $1,953,000 and $1,900,000 at December 31, 1998 and 1999, respectively. At December 31, 1999, approximately $5,400,000 was invested in a repurchase agreement, which matured on January 13, 2000. Restricted cash is comprised of a single office lease deposit. (f) Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (4) COMPREHENSIVE LOSS The Company adopted Statement of Financial Standards (SFAS) No. 130, Reporting Comprehensive Income in the fourth quarter of 1998. SFAS No. 130 establishes standards for the reporting of comprehensive income and its components. Comprehensive income, as defined, includes all changes in equity during a period from nonowner sources. The Company's foreign currency translation adjustments, which are excluded from net loss, are included in comprehensive loss. (5) TAXATION The Company provides for income taxes using the liability method. Under the liability method, deferred tax assets and liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted tax rates. The Company has not recorded an income tax benefit on the losses reported, as it is not likely that these benefits will be realized. 10 PIONEER PENSION FUND COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 (Continued) A reconciliation of the income taxes at the U.S. federal statutory rate to the provision for income taxes is as follows: 1999 1998 Benefit at U.S. federal statutory tax rate $ 4,745,081 $ 57,411 Effect of foreign tax rates that are less than U.S. rates (135,574) (1,611) Net operating losses for which no benefit is recognized (4,266,000) (55,800) Other (343,507) -- ----------- --------- Provision(benefit) for income taxes $ -- $ -- =========== ========= The Company's net operating loss carryforward for Polish tax purposes is approximately 67,000,000 PLN, or approximately $16,176,000. The statutory period for net operating loss carryforwards is five years. The maximum amount of the loss carryforward that can be used each year is limited to one half of the loss incurred in 1999. The following is a summary of the Company's deferred tax assets and liabilities at December 31: 1999 1998 Net operating loss carryforward $ 5,499,800 $ 55,800 Deferred sales commissions (1,178,000) -- ----------- -------- 4,321,800 55,800 Valuation allowance (4,321,800) (55,800) ----------- -------- $ -- $ -- =========== ======== 11 PIONEER PENSION FUND COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 (Continued) (6) FIXED ASSETS Fixed assets consist of the following at December 31: 1999 1998 Leasehold improvements $ 36,158 $ 4,650 Fixtures and furniture 316,692 86,979 Software 20,614 - Computer equipment 237,897 31,437 Vehicles 265,403 38,849 --------- -------- 876,764 161,915 Accumulated depreciation (361,073) (44,367) --------- -------- Fixed assets $ 515,691 $117,548 ========= ======== (7) STOCKHOLDERS' EQUITY The authorized capital of the Company at December 31, 1999 consisted of 485,714 of common stock, 100 PLN par value ($28) per share. All authorized shares of common stock were issued and outstanding at December 31, 1999. (8) RELATED PARTIES PGI and its affiliates provide certain services to the Company. Those services include general advisory services, distribution, shareholder account servicing and customer support. Additionally, certain administrative services are provided to the Company by PGI including assistance with development of certain computer applications and information systems, certain tax filings, as well as the preparation of certain financial information. All of these services have been priced and conducted on an arms length basis. The cost of services provided by PGI and affiliates in 1999 and 1998 is $1,515,910 and $ -, respectively. (9) FINANCIAL COMMITMENTS AND CONTINGENCIES (a) Guarantees and Letters of Credit There are no guarantees or letters of credit outstanding at December 31, 1999. 12 PIONEER PENSION FUND COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 (Continued) (b) Lease Obligations The Company has an open-ended office lease with a three month notice period. There are no other lease obligations at December 31, 1999. -----END PRIVACY-ENHANCED MESSAGE-----